Mada za sehemu hiiTrade CycleMada 3
- Features of trade cycle
- Causes of Trade cycle
- Theories of Trade cycle
Trade cycles can well be called business cycles.
It means the rise and fall in the level of economic activities in an economy over time. Trade cycle means ups and downs (fluctuations) in the level of economic activities in an economy.
A trade cycle simply means the whole course of trade or business activity which passes through all phases of prosperity and adversity.
The level of economic activities in any economy does not remain constant but does change as factors upon which they are based also change.
- Trade cycles are wavelike structure i.e. their occurrence is like the shape of waves.
- Expansion and contraction in trade cycles is cumulative in effects.
- Trade cycles differ in timing and level of fluctuations.
- Trade cycles have common patterns of phases which are sequential in nature.
- A downward movement of trade cycle is more sudden and violent than change from downwards to upwards.
- Trade cycles occur in aggregate variables such as output, income, prices, etc.
a. A damped cycle
The fluctuation become smaller and smaller over time.
b. An explosive cycle
The fluctuations become larger and larger over time.
Trade cycles has four (4) phases which are arranged in order as below:
- Depression (trough/slump)
- Recovery (revival/expansion)
- Boom (peak/prosperity)
- Recession (downturn/contraction)
This is a period when economic activities are at the lowest level. Therefore, it is the period where there is maximum decline in the level of economic activities.
Characteristics of Depression
- Lowest level of investments
- Highest level of unemployment
- Lowest level of income
- Lowest level of consumption
- Prices are very low
- People lose confidence in their government
- Lowest standard of living
- Banks and businesses are bankrupt. Etc.
This is a period when the economy starts to improve from a depression.
Characteristics of Recovery
- Investment starts to increase
- Unemployment starts to reduce
- Standard of living starts to improve
- Incomes and prices start to increase
- Banks start providing credit and people start saving
- Consumption starts to increase
- People start to gain confidence in their economy
Boom
This is a period the economy is at highest level and therefore economic activities are at the most desirable level.
Characteristics of Boom
- Highest level of investment
- Lowest level of unemployment
- Highest standard of living
- Social, economic and political stability
- High incomes
- High effective demand
Recession
This is a phase where there is a decline in the level of economic activities.
Characteristics of a recession
- Decline in investment
- Increase in unemployment
- Decrease in incomes
- Decline in effective demand
- Decrease in the standard of living
- Tax revenue falls. Etc.
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