Question

Explain the various phases of the business cycles. What does each phase imply? (250 words answer).

Answer 1

The various phases of business cycle are: expansion,peak, contraction, trough

Expansion :- it is a phase in which business expands for a prolonged period of time. The movement from trough to peak is noticed. A rise in employment is also seen. It is also referred to as economic recovery because economy comes round a declining economy.

Peak:- it is the highest point in the business cycle where increase in employment, economic growth , rising prices is seen. Maximum output and full or more than full employment is seen. It is the point before the market enters contraction.

Contraction :- this phase produces a scene of decline in the economy. It is characterized by decline in industrial production, income , sales, and puts a dent in the economy. This is generally seen after a peak and before the trough.

Trough:- this phase is indicative of the fact that economy has started to heal. The GDP stops falling and starts increasing. The business cycle ends with this phase.