Phases of a trade cycle:
Trade cycle passes through four phases which are discussed below.
1. Boom:

• The period when economic activity reaches the maximum growth level in a given time period is called the ‘Boom period’ or simply ‘Boom’.
• In the Boom period, the demands of goods/services are at its peak and so do incomes and profits. Thus, this period is also called ‘peak’.

2. Recession:

• -> The period that comes after the ‘Boom’ is called ‘recession’.
• -> In a given time period, when economic activity reaches to its peak which in turn takes the investments and employment also to the peak i.e. the highest possible levels, a slowdown occurs. As a result, demand slows down and so do investment and unemployment and recession occur.

3. Depression:

• During the slowdown in the recession phase when all activities reach a ‘ minimum level, it leads to phase called ‘depression’.
• In this phase, the confidence of buyers, producers and investors in the economic activity is at its lowest.
  Formation of depression:
• During recession phase, consumers start believing and expecting that since prices are falling they will still fall. This stops them from buying and the demand further decreases. When the demand falls, the production and employment also falls. This leads to more reduction in the demand which then finally causes depression.

4. Recovery:
When depression lasts for some time, the suppressed demand starts emerging. Government may also try to boost investments and employment through various strategies. Moreover, at times technological changes take place in the long run. All this leads to a recovery of demand, employment and investment and the market starts getting normal.