Economic Fluctuations



There are 4 phases through which trade CYCLES are passed. They are prosperity, recession, depression, and recovery. In economic terms, these 4 stages are called economic fluctuations.

Prosperity

The oxygen of any business or its prosperity is profit. In a capitalist country like India when the profits increases or inflates, businessman and industrialists get the necessary incentive.

These incentives make them produce more and thereby they invest more. So, more and more investments lead to more employment. Thus, more income effectively means an increase in demand.

Browse more TOPICS under National Income

The concept of National Income

Measurement of National Income

The concept of Consumption, Saving, and Investment

Economic Growth

Recession

When there is excessive EXPANSION, it leads to diseconomies to continue to large scale production. Furthermore, it also leads to higher wages, rising costs, and any more shortages.

This is termed as a recession in an economic cycle. When the demand for bank credits are rise and high, the interest rates thus tends to increase. Thus, the profits at a lower level are also diminished.

Depression

In this part of economic fluctuation, employment, income, and output BEGIN to decline sharply. Thus, it can also be seen in recessionary trends. Furthermore, the investments FALL and the enterprises are also discouraged. Thus, it leads to the pessimism that leads to deflation and depression.

Recovery

Depression period does not continue forever. There is cooling down after a period of time. Thus, in this period the improvement of trade begins. During this period, old debts are repaid, the units which are weaker are liquidated, and many enterprises are reorganized.

Thus, in this time period, the unemployment rate is also gradually decreased. Also, this is the time in which income is generated.