Lecture notes
General economics discussed
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- Lancaster University (LU)
This document deals with theory of production,of course this is a sub topic in general economics.The document describes and explains the theory of production
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Trade cycleMeaning & definition of trade cycle
The alternating periods of expansion and contraction in the economic activity
has been called business cycles or trade cycles.
The period of high income, high output and high employment is called as the
Period of Expansion, Upswing or Prosperity. The period of low income, low
output and low employment is called as the Period of Contraction, Recession,
Downswing or Depression.
Definition of Trade Cycle
According to Keynes, "A trade cycle is composed of periods of Good Trade,
characterized by rising prices and low unemployment percentages, shifting
with periods of bad trade characterized by falling prices and high
unemployment percentages."
1|Business Cycles
, Features of Trade Cycle
The characteristics or features of trade cycle are :-
1. Movement in Economic Activity : A trade cycle is a wave-like movement in
economic activity showing an upward trend and a downward trend in the
economy.
2. Periodical : Trade cycles occur periodically but they do not show the same
regularity.
3. Different Phases : Trade cycles have different phases such as Prosperity,
Recession, Depression and Recovery.
4. Different Types : There are minor and major trade cycles. Minor trade
cycles operate for 3-4 years, while major trade cycles operate for 4-8 years or
more. Though trade cycles differ in timing, they have a common pattern of
sequential phases.
5. Duration : The duration of trade cycles may vary from a minimum of 2 years
to a maximum of 12 years.
6. Dynamic : Business cycles cause changes in all sectors of the economy.
Fluctuations occur not only in production and income but also in other
variables like employment, investment, consumption, rate of interest, price
level, etc.
7. Phases are Cumulative : Expansion and contraction in a trade cycle are
cumulative, in effect, i.e. increasing or decreasing progressively.
8. Uncertainty to businessmen : There is uncertainty in the economy,
especially for the businessmen as profits fluctuate more than any other type of
income.
9. International Nature : Trade Cycles are international in character. For e.g.
Great Depression of 1930s.
2|Business Cycles
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