TRADE CYCLE/BUSINESS CYCLE

• TRADE CYCLE/
  BUSINESS CYCLE
• CA FOUNDATION
  MACRO ECONOMICS
  
  
• BUSINESS CYCLE

1. REFERS TO THE PHENOMENON OF CYCLICAL BOOMS AND DEPRESSIONS. IN BUSINESS CYCLE THERE ARE WAVE LIKE FLUCTUATION IN AGGREGATE EMPLOYMENT,INCOME AND OUTPUT.
2. ANATOL MURAD” BUSINESS CYCLES ARE ALTERNATIONS OF PROSPERITY AND DEPRESSION”
3. LORD KEYNES” A TRADE CYCLE IS COMPOSED OF PERIODS OF GOOD TRADE CHARACTERIZED BY RISING PRICES AND LOW UNEMPLOYMENT PERCENTAGE ALTERNATING WITH PERIODS OF BAD TRADE CHARACTERIZED BY FALLING PRICES AND HIGH UNEMPLOYMENT PERCENTAGE.

• TYPES OF CYCLES
• THE SHORT KITCHIN CYCLE:- ALSO KNOWN AS MINOR CYCLE WHICH IS APPROXIMATELY 40 MONTH DURATION. FIRST EXPLAINED BY ENGLISH ECONOMIST KITCHEN.
• LONG JUGLER CYCLE:- ALSO KNOWN AS MAJOR CYCLE. FIRST EXPLAINED BY FRENCH ECONOMIST JUGLAR. THEY ARE OF DURATION OF 8 TO 12 YEARS.
• THE VERY LONG KONDRATIEFF CYCLE:-THESE ARE PROLONGED CYCLES WITH THEIR DURATION RANGING FROM 50 TO 60 YEARS.
• BUILDING CYCLE: RELATES TO CONSTRUCTION OF BUILDING WHICH IS OF FAIRLY REGULAR DURATION. ITS DURATION IS TWICE OF THE MAJOR CYCLE AND IS ON AVERAGE 18 YEARS

• FEATURES OF TRADE CYCLE/BUSINESS CYCLE

1. CYCLICAL FLUCTUATIONS ARE WAVE LIKE MOVEMENT
2. FLUCTUATIONS ARE RECURRENT IN NATURE
3. THEY ARE IRREGULAR
4. THEY OCCUR IN SUCH AGGREGATE VARIABLE OUTPUT,EMPLOYMENT,OUTPUT AND PRICES
5. THESE VARIABLES MOVE AT THE ABOUT THE SAME DIRECTION BUT AT DIFFERENT RATES
6. THEY ARE NOT SEASONAL
7. THEY ARE NOT SECULAR TREND SUCH AS LONG RUN GROWTH OR DECLINE IN ECONOMIC ACTIVITY

• PHASES OF BUSINESS CYCLE
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• PHASES OF BUSINESS CYCLE
• D
  
• EXPANSION

1. BEST STAGE OF PROSPERITY
2. THE OBJECTIVE OF THE NATIONAL ECONOMIC POLICY IS TO OBTAIN THIS STAGE
3. NO IDLE RESOURCES,REAL INCOME CONSUMED,REAL INCOME PRODUCED AND THE LEVEL OF EMPLOYMENT ARE HIGH OR RISING

• FEATURE :-

1. INCOME OR PRODUCTION IS THE MAXIMUM
2. REACHES FULL EMPLOYMENT AND HENCE RISE IN PRICES AND WAGES
3. PRICE RISE VERY HIGH
4. WAGE RATE IS VERY HIGH
5. TRADERS AND INDUSTRIALISTS EARN HUGE PROFITS
6. EXPANSION IN BANK CREDIT
7. ALL KINDS OF INVESTMENT INCREASE
8. INCREASE IN CONSUMPTION EXPENDITURE
9. RATE OF INTEREST IS HIGH
10. OPTIMISTIC BEHAVIOR OF TRADER AND ENTREPRENEURS

• RECESSION

1. INVESTMENT IN MADE THOSE AREA WHICH DO NOT PROVE TO BE PROFITABLE
2. THE OPTIMISM GIVE WAY TO PESSIMISM
3. INVESTMENT SHOWS SIGNS OF DECLINE. ENTERPRISE ARE CLOSED DOWN
4. UNEMPLOYMENT SPREADS
5. DECLINE IN THE ECONOMIC ACTIVITY
6. INCOME OF THE PEOPLE FALLS

• FEATURES:-

1. FALL IN  ECONOMIC ACTIVITIES
2. FALL IN INVESTMENT SETS IN REVERSE MOTION OF MULTIPLIER
3. FALL IN INCOME AND OUTPUT
4. WORKERS ARE RENDERED UNEMPLOYED
5. PRICES BEGIN TO FALL  AND FALL IN PROFITS ALSO
6. WAGES FALL
7. CONTRACTION OF BANK CREDIT
8. FEELING OF FEAR AND DOUBT
9. DEMAND OF THE CONSUMERS FOR VARIOUS GOODS FALL

• DEPRESSION

1. UNDER DEPRESSION ALL ECONOMIC FACTORS LIKE INCOME,EMPLOYMENT,PRICES,PROFIT,INTEREST,WAGES DEMAND ETC HAVE TENDENCY TO CONTRACT
2. PRODUCTION AND DISTRIBUTION SYSTEM OF THE ECONOMY GO OUT OF GEAR
3. INTEREST RATE FALLS BUT NO NEW INVESTMENT TAKES PLACE
4. MANY INDUSTRY RUINED AND IT ADVERSELY AFFECTS THE ECONOMY

• FEATURES

1. LEVEL OF OUTPUT AND INCOME IS LOW
2. UNEMPLOYMENT INCREASES
3. WAGES,INTEREST AND OTHER COST DECLINE
4. PRICE LEVEL FALLS
5. VOLUME OF PROFIT FALLS RAPIDLY
6. NO DEMAND FOR CREDIT
7. DEMAND FALLS
8. OVERALL DECLINE IN INVESTMENT
9. PESSIMISM FEELING

• RECOVERY

1. DURING THE PHASE OF DEPRESSION A SITUATION DOES ARISE WHEREIN SHORTAGE OF GOODS IS EXPERIENCED
2. NEED FOR REPLACEMENT OF MACHINES BECOMES NECESSARY THAT THE BUSINESSMEN ARE OBLIGED TO BUY NEW MACHINES AND REPLACE OLD AND WORN OUT
3. MORE DEMAND FOR CAPITAL GOODS.INTERACTION OF MULTIPLIER AN ACCELERATION COME INTO PLAY INCREASE IN INCOME
4. INCREASE IN DEMAND.OUTPUT AND EMPLOYMENT

• FEATURES
• REPLACEMENT INVESTMENT RESULT INTO INCREASE IN INCOME AND OUTPUT
• EMPLOYMENT INCREASES
• RISE IN DEMAND
• MORE PROFITS
• COST INCREASE RELATIVELY LESS
• INVESTMENT INCREASES
• DEMAND FOR LOAN ALSO INCREASES
• FEELING OF OPTIMISM
• DIFFERENT PHASES OF TRADE CYCLES
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• CAUSES OF BUSINESS CYCLE
• EXTERNAL FACTORS:

1. WARS
2. REVOLUTION
3. POLITICAL EVENTS
4. GROWTH RATE OF POPULATION
5. MIGRATION
6. DISCOVERY OF NEW LANDS AND RESOURCES
7. NATURAL CALAMITIES
8. AFFECT EITHER THE INVESTMENT OR CONSUMPTION COMPONENT OF AGGREGATE DEMAND

• INTERNAL FACTORS

1. BANK CREDIT
2. OVER SAVING OR UNDER CONSUMPTION
3. OVER INVESTMENT
4. COMPETITION
5. PSYCHOLOGICAL CAUSES
6. INNOVATIONS
7. MARGINAL EFFICIENCY OF CAPITAL