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
- 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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