Trade Cycle: 4 Phases of Trade Cycle ~ Discussed!

Trade cycle refer to regular fluctuations in the level of national income. It is a well-observed conomic phenomenon, though it often occurs on a generally upward growth path and has a variable time span, typically of three years.
Trade Cycle

Phases of Trade Cycle:
Typically economists divide business cycle into two main phases- depression and recovery. Boom and slump mark is the turning points of the cycles.


In this phase, the whole economy is in depression and the business is at the lowest ebb. The general purchasing power of the community is very low. The productive activity, both in the production of consumer and the production of capital goods, is at a very low level. Business settles down at a new equilibrium point with a low level of prices, costs and profits. It may last for a number of years.

This phase is also known as "expansion". The depression period of trade cycle ends in the recovery period. The economic situation has now become favorable Money is cheap and so are the other materials and the factors of production. Productive activity has been increased. The entrepreneurs have now sufficient financial backing. Constructional and allied industries are receiving orders and employing more workers. Thus creating more income and employment. This stimulates further investment and production. The whole economy is moving faster towards the boom.

Boom or peak is the turning point of the trade cycle. It is the highest point of the economic recovery. The typical features of boom are as follows:
• A large number of production and trade.
• A high level of employment and job opportunities in sufficient amount to permit a good deal of labor mobility.
• Overall rising prices.
• A rising structure of interest rates, so that a bullish tendency rules stock exchanges.
• A large expansion of credit and borrowing.
• High level of investment i.e. manufacturing of machinery.
• A rise in wages and profits so that the community's income rises.
• Operation of the economy at optimum capacity. 

It is a sharp slowdown in economic activity, but it is different from depression or slump which is more sever and prolonged downturn.

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