In the business world, there are usually ups and downs. For some years businesses flourish, and national income, production, and profits increase. Most people start getting jobs. But this situation completely changes after a few years. Business activities read quite slowly. The level of national income falls. Production and profits decrease. The majority of people remain unemployed. Such fluctuations in business activities are called business cycles.
Definition:
The famous American economist Wise Le Mitchell defined business cycles in the following words.
The business cycle is the fluctuation in overall economic activity that affects businesses. A business cycle consists of simultaneous booms in many economic activities followed by general recessions and contractions and subsequent recoveries. These types of fluctuations are repeated at intervals but these intervals are not uniform.
Phases of Business Cycle:
There are different phases of the Business Cycle. To understand the whole process we discuss them in detail below.
Boom Phase:
During a period of boom or expansion, economic and business activities become very fast. Production, employment, prices, and profits begin to rise. Banks and financial institutions start giving loans to productive enterprises very generously. Employers see a bright future and start investing aggressively. They are busy installing new machines apart from overhauling the old ones. So that maximum production can be achieved.
Therefore, they leave no stone unturned to increase their production as much as possible in the hope of increasing demand in the future. In short, business activities are at their peak during this period.
Recession Phase:
When the period of hot market or expansion reaches its peak i.e. when wages, prices, profits, employment, production, and incomes touch their peak, then the period of retracement or retracement begins. With the advent of this period, the forces that tend to sustain the boom period begin to weaken. And the forces of the depressed period begin to overwhelm them. Employers have gone all out in investing to take advantage of the hot market period, which has led to a shortage of workers due to the high demand for labor. . Therefore, they do not hesitate to employ non-standard birth agents. Since the rate of production of these non-executives is less than the remunerations they receive, on the one hand the cost of production starts to increase and on the other hand the rate of profits decreases. Due to this situation, employers start withdrawing from investment. This causes production to decrease, and unemployment to increase. When employers see that their cost of production is not even covered, they stop producing more. Eventually, the recession period comes to an end and is replaced by a depression period.
Depression Phase:
During the depression period of the business cycle, the pace of business activities slows down. The level of national income decreases. Revenues and profits decrease, so production in factories is reduced. This reduces employment. The prices of goods decrease and the purchasing power of people decreases. Production of capital goods and consumption goods decreases. During this period, many production companies are forced to close their businesses. This period proves to be a major disincentive for investment. Banks and other financial institutions become vulnerable to corruption. The demand for bank loans decreases. In short, this is a time of great disappointment in the business world.
Recovery Phase:
When the depressiondepression period reaches its peak. So it ends and is replaced by a period of recovery and revival. In this period, hope and self-confidence replace pessimism and pessimism. Optimistically, manufacturing companies start repairing and rehabilitating their machines. The desire to outdo each other again prompts them to economic struggle. The government then increases its construction activities. As a result of these measures, employment starts to increase. People's incomes start to increase. Which increases the effective demand. Which leads to encouragement of consumer goods manufacturing industries.
Employers tend to invest in high-risk business activities hoping for a brighter future. Banks and financial institutions start giving loans openly. Thus, the period of restoration or revival begins to accelerate toward its climax.