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

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

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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

 Boom:

• 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.

Recession:

• 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.

Depression:

• 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.

Recovery:

• 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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