Define the business cycle

The business cycle some times called the trade cycle, diagrammatically describes the variation or 'high points and low points' in the economic activities which an economy experiences over some stretch of time. Business Cycle is a key element of the economy and includes four segments i.e., boom, recession, depression, and recovery.

Boom: During the boom period, an economy shows a consistent pace of economic growth, i.e., output, high growth in income, employment, and buying intensity of individuals, and the extension of various sectors. Anyway, during the boom period, inflation of essential items also rises significantly. Because the economy is in full employment scale during the boom period, there is little or negligible scope of extra employment creation in the economy.

Depression or Slump: This is the next period of the business cycle, and during this stage, there has been a nonstop fall in the industrial output, consumer demand, employment rate, interest rate, and trade. Because of falling employment and consumer demand, the inflation rate of specific things varies according to market demand and supply factors.

Recession: It is additionally named as an economic slowdown period, and during the economic downturn, there is a slow down in all sectors. The joblessness rate additionally turns out to be high during this period. There is a sharp decrease in the new job creations in the economy, and therefore demand for goods and services also falls. As there is a fall in consumer demand, the inflation rate also falls proportionately during the downturn.

Recovery: This is the fourth period of the business cycle in which an economy gives improvement indications. Practically all key financial areas give positive indications with rising employment, demand for industrial products, external trade, and expansion of bank loans to agriculture and industries. During the recovery stage, salary and way of life of individuals likewise rise extensively, and inflation of food grains and industrial products additionally shows moderate rises.