Question

Discuss in detail the characteristics of the business cycle. Analyze some of the causes of the business cycle that were discussed in class.

Answer 1

Ans) Business cycle are natural expansion and contraction of business productivity . It has four phases÷

• Trough
• Expansion
• Peak
• Contraction.

Characteristics ÷

• Periodicity÷ However, each business goes through these cycles but there is no specific time. It varies with sector and business type. The duration may vary from months to 12 years. The intensity of each phase also differs from industry to industry.
• Synchronic÷ these fluctuations are not limited to one industry or sector, they affect other sectors and overall economy of a country.
• All Sectors are affected ÷ a change in business cycle of one sector affects other sectors as well. in general all major sectors are affected. Durable consumption good and capital goods bear more brunt of business cycle.
• Fluctuations in business cycle in one country can eventually affect business in other countries too.
• It is sellf reinforcing.
• The wavelengths of peak and trough may vary.

Causes÷ there can be many causes of business cycle

• Change in political conditions.
• Changes in demand. More demand, more output, more employment and more profits.
• Change in real wages.
• Population expansion.
• Wars. It shift the production from consumer goods to capital goods like arms and weapons.
• Change in technology.