1. Four Phases of the Business Cycle

2. Four Phases of the Business Cycle
The business Cycle (or Trade Cycle) is divided into the following four phases:
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 Rise in the standard of living
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
Rise in the GNP (gross national product)
Called a boom period

4. Recession Phase Economic activity slows Demand starts falling
Overproduction of goods
Steady decline in:
Output
Income
Employment
Prices and profit
Businessmen loose confidence
Recessions last a short time, generally

5. Depression Phase Fall in the standard of living
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
Under-utilization of resources and fall in GNP

6. Recovery Phase Expansion and rise in economic activity Rise in demand
Increase in investment and production
Steady rise in:
Output
Income
Employment
Prices
Profits
Also known as the revival phase
Revival slowly emerges into prosperity

7. Four Phases of the Business Cycle