Business cycle refers to the movements or fluctuations in the economic activities such as trade and production. The movements can be upward or downward; that is, there are periods of expansion and contraction in the levels of economic activity. Thus, there is a wave-like pattern in the business cycle. It expands, and leads to a peak and then it contracts and leads to a trough. Thus, the business cycle consists of four phases. Peak is the point of high activity and trough is the point of low activity. It can be well represented by the following diagram.
Expansion phase includes recovery and prosperity. During the recovery period, the economy recovers itself; the existing opportunities are expanded and new created; various improvements are made to improve the economy.
Thus, about the future of the economic growth and development there is an ever-increasing optimism during the recovery period.
This optimism is manifested in investing the capital in industries and machineries, employing more labor, and in the need of wanting more materials to facilitate this. All related industries are equally expanded. For example, with the expansion of automobiles industries, other industries of glass, steel, and rubber etc. are also expanded. Moreover, cement and machinery industries are also expanded because more roads are needed for automobiles. This demand for labor and material results in the prosperity of the workers and the suppliers. This prosperity period may continue to rise until it reaches a peak, and this ends the expansion phase.
Below are given six statements. Your task is to identify the statement that best describes the author’s thoughts about the passage.
- Industrial expansion does not affect luxury goods like jewelry.
- Prosperity can only be attained with the creation of innovative products.
- After every expansion, recession follows and it is a normal process.
- Recession results when the customers lose their confidence in the market.
- Long-lasting and permanent prosperity can be attained with sound economic decisions and policies.
- Recession results when a company or group of companies fail in what they promised to deliver.
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