Trade Cycles

TRADE CYCLES

Fluctuations taking place in an economy at intervals in the form of boom and depression are called trade cycles.

TYPES OF TRADE CYCLES  Major

cycles  Minor cycles  Very long cycles

Major cycles :

These are of the duration of 8 to 12 years. They were first explained by French economist Juglar. Hence they are called Juglar cycles.

MINOR CYCLES :

Duration of these cycles is from 2 to 5 years. They were first mentioned by an English economist Kitchen. Hence they are called Kitchen cycles.

VERY LONG CYCLES :These are the cycles with their duration ranging from 50 to 60 years. These first referred by Russian economist Kondratieff. Hence they are called Kondratieff cycles.

PHASES OF TRADE CYCLES  Expansion

or Boom

 Recession  Depression  Recovery

or Contraction

EXPANTION OR BOOM 

   

  

The economy reaches at full employment. Prices rises very high. Wage rate is very high. Income or production is maximum. Traders and industrialists earn huge profits. Expansion in bank credit. Increase in consumption expenditure. Increase in investments.

RECESSION • There is fall in income and output. • Unemployment. • Prices begin to fall. • Wages falls. • Profits fall. • Contraction of bank credit. • Fall in investment. • Demand falls.

DEPRESSION OR CONTRACTION         

Unemployment increases. Level of output is low. Wages, interest and cost decline. Price level falls. Volume of profit falls. Demand for credit falls. Demand for capital goods falls. Demand for consumer goods falls. Decline in investments.

RECOVERY ► Demand

for consumption and production goods rises. ► Employment increases. ► Prices begin to look up. ► More profits. ► Investments increases. ► Demand for bank loan and advances increases. ► Increase in income and output.

METHODS TO CONTROL TRADE CYCLES  Monetary

policy  Fiscal policy

MONETARY POLICY 

Monetary policy refers to the regulation and control of flow of credit, supply of money and rate of interest in the economy with a view to restore economic stability.

FISCAL POLICY • Fiscal policy is the policy concerning the revenue and the expenditure and debt of the government for achieving definite objectives.