Phases of Business Cycle
All the four business cycle phases are cyclical but there is no explicit period or intervals for these business cycle occurrences. Below are the four business cycle phases or trade cycle phase.
- Depression Phase
- Revival Phase
- Propensity Phase
- Recession Phase
1. Depression Phase
Under the depression phase both economic activities and national income fall and the cost is comparatively higher than price. Level of profit decreases and there is a reduction in the consumer and capital goods. Graph of bank credits goes downward. In simple word during depression the level income, employment, consumption, prices comes to the lowest level.
2. Recovery & Revival Phase
During depression phase economy slowly moves towards recovery. Slowly and steadily the levels of income, employment, consumption and prices goes upward in revival phase of trade cycle. Those consumers delayed their consumption in the hope of decrease in prices, now come back to consumption. As the consumption starts in the economy businesses becomes profitable. There is noticeable re-employment in the economy.
3. Boom & Prosperity Phase
The prosperity stage is the highest level of revival phase of trade cycle. In this stage demand, productivity, employment, people income and consumption are at the top. When there is a raise in profits, businesses are able to get loans from financial institutions. As the demand increased for bank credits and loans the rate of interest reaches the highest floor, which leads to sharp hike in the prices.
4. Contraction & Recession Phase
Recession phase is not the only phase of business cycle, recession is a change point where the forces set for recession take over the forces of extension. In the previous stage banks were engaged in advances, however in recession stages, now have shifted towards loans recovery. The cost begins increase than the prices due to employment of less efficient factors of production with higher cost. As a result there a gradual disappear in profits. There is an uncertainty in the economy which leads to cut down the investment, production and employment.