Business Cycles: Caiib Paper 1 (Module A), Unit 5

Business Cycles: Caiib Paper 1 (Module A), Unit 5

Dear Bankers,
We all know that CAIIB exams are conducted by the Indian Institute of Banking and Finance (IIBF).  CAIIB is said to be one of the difficult courses to be cleared for the bankers. But we assure you that with the help of our “CAIIB study material”, you will definitely clear the CAIIB exam.
CAIIB exams are conducted twice in a year. Candidates should have completed JAIIB before appearing for CAIIB Exam. Here, we will provide detailed notes of every unit of the CAIIB Exam on the latest pattern of IIBF.
So, here we are providing “Unit 5: Business Cycles” of “Module A: Economic Analysis” from “Paper 1: Advanced Bank Management (ABM)”.

The Article is Caiib Unit 5: Business Cycles

Business Cycles

  • The term Business cycle refers to economy-wide fluctuations in production or economic activity over several months or years.
  • Business Cycle is also known as Economic Cycle.
  • Business Cycle simply means the whole course of business activity which passes through the phases of prosperity and depression.
  • A business Cycle is not a regular, predictable, or repetitive phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degree, unpredictable.
Characteristics of a Business Cycle:
  • A business cycle is synchronic
  • A business cycle show a wave like movement
  • Cyclical fluctuations are recurring in nature
  • There can be no indefinite depression or eternal boom period
  • Business cycles are pervasive in their effects.
  • The up and down movements are not symmetrical. The Downward movement is more sudden and violent than the upward movement.
Phases of Business Cycle:

A business cycle is identified as a sequence of four phase. Boom, Recession, Depression and Recovery


  • During the Boom phase production capacity is fully utilized and also products fetch an above normal price which gives higher profit.
  • In Boom period, consumption will be decreased as prices are going up.
  • The Demand is more or less stagnant or it even decreases.


  • A downward tendency in demand is observed. The supply exceeds demand
  • Desire for liquidity increases all around.
  •  Producers are compelled to reduce price so that they can find money to meet their obligations.
  • This Phase of the business cycle is known as the Crisis.


  • Underemployment of both men and materials is a characteristic of this phase. General Demand falls faster than production
  • Volume of Production will be reduced.
  • The demand for the bank credit is at its lowest which results in idle funds.
  • The interest rates are decline regime.


  • Depression phase done not continue indefinitely.
  •  Wages will be paid low.
  •  Prices are at the lowest, the consumers, who postponed their consumption expecting a still further fall in price, now start consuming.
  • As demand increases, the stocks of goods become insufficient.

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