1. Four Phases of the Business Cycle

2. Four Phases of the Business Cycle
Prosperity Phase: Expansion or Boom or Upswing of economy
Recession Phase: From prosperity to recession or downward turn
Depression Phase: Contraction or Downsizing of the economy
Recovery Phase: from depression to prosperity or upward turn

3. Prosperity Phase High level of output and trade
High level of effective demand
High level of income and employment
Rising interest rates
Large expansion of bank credit
Overall business optimism
A high level of MEC (Marginal Efficiency of Capital) and investment

4. Recession Phase Economic activity slows Demand starts falling
Overproduction of goods
Steady decline in:
Output
Income
Employment
Prices and profit

5. Depression Phase Fall in output and trade Fall in income
Rise in unemployment
Decline in consumption and demand
Fall in interest rates
Deflation
Contraction of bank credit
Overall business pessimism
Fall in MEC and investment

6. Recovery Phase Rise in economic activity Rise in demand
Increase in investment and production
Rise in:
Output
Income
Employment
Prices
Profits

7. Four Phases of the Business Cycle