1. Business Cycle
The term business cycle is referred to the recurrent
ups and downs in the level of economic activity that
extend over a period of time. The business fluctuations
occur in aggregate variable such as national
income, employment and price level.
Business cycle is also called as “Trade Cycle”
Business Cycle-Martin Thomas

2. 4 Phases of Business Cycle
 Prosperity Phase : Expansion or Boom or
Upswing of economy.
 Recession Phase : from prosperity to recession
(upper turning point).
 Depression Phase : Contraction or Downswing of
economy.
 Recovery Phase : from depression to prosperity
(lower turning Point).
Business Cycle-Martin Thomas

3. Prosperity: Expansion & Peak
When
there
is
an
expansion
of
output, income, employment, prices and profits, there is also
a rise in the standard of living. This period is termed as
Prosperity phase.
 Rise in the national output & trade
 Rise in consumer and capital expenditure
 Rise in the Price of raw materials and finished goods
 Rise in the level of income & employment
Business Cycle-Martin Thomas
Fig.1

4. Recession & Turning Point
During a recession period, the economic activities
slow down. When demand starts falling, the
overproduction and future investment plans are also
given up. There is a steady decline in the
output, income, employment, prices and profits.
Business Cycle-Martin Thomas

5. Depression & Trough
When there is a continuous decrease of
output, income, employment, prices and
profits, there is a fall in the standard of living and
depression sets in. During the phase of Depression:
 The growth rate become negative
 The level of national income and expenditure
declines
 Price of consumer and capital goods decline
 Workers lose their job
Business Cycle-Martin Thomas

6. Recovery Phase
As the recovery gathers momentum, some firms
plan additional investment; some undertake
renovation programmes, and some undertake both.
These activities generate construction activities in
both consumer & capital goods sector. As a result
more employment is generated and wage rates
moving upward.
Business Cycle-Martin Thomas

7. TROUGH
Fig.2
Business Cycle-Martin Thomas

8. Fig.3
Business Cycle-Martin Thomas

9. Thank you…
Business Cycle-Martin Thomas