Business cycle, inflation and deflation

Business cycle

The short-term variations in economic activity are known as business cycles or business fluctuations.

What causes business fluctuation? How can government policies reduce their virulence? Economists were largely unable to answer these questions until 1930’s. At the point, it was the revolutionary theories of J. M. Keynes that pointed to the importance of the Forces of aggregate demand In determining business cycle.

The term business cycle or economic cycle refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles.

The effect of upswing and downswing in economic activity is felt quite intensely because of the ever-increasing business activity and the strong inter-relations between different sector of an economy and between various economies.

During the great depression of 1930’s, the ill effect of the wide swing in business activity was almost devastating. It was also noticed that the great depression there was ‘ no natural recovery ‘ of the economic activity.

Phases/stages of business cycle

A Typical or standard business cycle is characterised by five different stages or phases.{depression, recovery (or revival), prosperity(or full employment), Boom(or overfull employment) and recession.}

These stages of business cycle recur with some sort of regularity and are uniform in case of a different cycle. However, the periodicity of different phases of trade cycle and their time interval difference between cycles. For instance, a cycle may have a periodicity of about 5.5 years in case of advanced nations, while it may be about 8.5 years in case of less developed countries. The time intervals may also differ




• Depression 

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