This document provides information about business cycles including: 1. It defines business cycles as periods of expansion and contraction in overall business activity as measured by economic indicators like GDP, production, employment, and income. 2. It describes several types of business cycles including Kitchin cycles (40 months), Jugler cycles (10 years), Kundratieff cycles (50-60 years), and Kuznets cycles (16-22 years). 3. It outlines the characteristics of business cycles including periodicity, synchronism across industries/economies, international influence, and unequal effects on different sectors.

1. DAV College of
Management
Address: Bhanimandal, Lalitpur
Phone Number: 01-5533044
Business Cycle
Submitted By: Submitted To:
Aadarsh Shrestha Hira Lal Shrestha

2. BUSINESS CYCLE
Business cycle refers to the expansion and contraction in overall business activity as evidenced
by fluctuations in aggregate economic activity such as the gross product, the index of production,
employment and income. It is also known as Trade Cycle.
According to Benham, “Trade Cycle refers to a period of prosperity followed by a period of
depression.”
TYPES OF BUSINESS CYCLE
1. Short-Run Kitchin Cycle
It is also known as a minor cycle, which is 40 months duration. This cycle is propounded
by British economist, Joseph Kitchin.
2. Long Jugler Cycle
This cycle was named after the nineteenth century French economist, Jugler. It is defined
as fluctuation in the business activities between successive crisis. This cycle is about 10 years
of time period.
3. Very Long Cycle
This cycle was propounded by the Russian economist, Kundratieff. So, this is also known
as Kundratieff Cycle. Therefore, period of this cycle is from 50 to 60 years. Many short
cycles are included in thus long period.
4. Building Cycle
The building cycle, which relates to the construction of the building is in fairly regular
duration. The time period of the cycle is about 18 years.

3. 5. Kuznets Cycle
This cycle was propounded by American economist, Simon Kuznets. The time period of
this cycle is from 16 to 22 years.
CHARACTERISTICS
1. Periodicity
The first thing is that a trade cycle is periodic but it cannot be fixed. It means that
trade cycle operates periodically at fairly regular intervals of 10 to 12 years.
2. Synchronism
Synchronism is another feature of trade cycle. It overcomes all industries, all the
areas of the economy. It has wider coverage like that of The Great Depression of 1929.
Therefore, cycle starts at one sector of economy as a communicable disease and it
immediately transfers and expands into other sectors and finally the whole economy will
be affected.
3. International
A trade cycle that appears in any country of the world without delay influences on the
other countries as well. Therefore, the nature of the trade cycle is also international.
4. Capitalist Economy
Trade cycle is an important feature of a capitalist economy. There is no government
and other kinds of interventions in the economic system. A change in any part of
economy causes the deep influences on the other sector of the country.

4. 5. Unequal Effects
A trade cycle affects different people of a society differently. It has more effect on the
capital goods industries and slight effect on the consumption goods. Likewise, it has
more influences n the gods industries than n the services industry.
Phases and Effect of Business Cycle
A fluctuation in the level of economic activity which forms a regular pattern with an
expansion of activity followed by a contraction succeeded by future expansion is known as trade
cycle.
Prosperity
It starts from point A of the trend line and ends with boom point B and it demand output
employment and income are rising at a high level. Prosperity is characterized by high hope and
optimism among businessman and industrialists and there is the high level of capital formation
motivates by high profile and high prices.
Characteristics of Prosperity Phase
• Large volume of production and trade
• High level of employment and income
• High level of MEC and Real investment
• Rising structure of interest rates and prices
• Overall business optimism

5. Recession
It starts from Boom point B and ends with trend line point C and it also lasts for a short
time period and arises due to high liquidity preference. Producers face the problem of higher cost
of production, higher rates of interest.
Characteristics of Recession Phase
• Increase in liquidity preference
• Contraction of credit supply
• Decrease in output, employment and income
• Decrease in effective demand, price level and profit etc.
Depression
Depression is a state of trade cycle. It is the worst phase of trade cycle. There is
considerable reduction in the production of goods and services, employment, income, demand
and price and sector will be stricken by pessimism and despair. The general decline in economic
activity leads to a fall in bank deposits. Credit expansion stops. Bank rate falls considerably.
There is economic darkness in the economy. It means the economic activities in the economy are
far below or below the normal rate of growth. There is no possibility of establishing new
industries and the old industries may also be going to be closed. Likewise, the fall in the price of
agricultural commodities and raw materials push the farmers to a very unfavorable position. Due
to this, there will be discouragement everywhere in the economy.
The longest depression had occurred in the U.S.A. during 1873-79 and 1929-33.

6. Depression may be short lived or it may continue at the bottom for a considerable time. But
sooner or later, limiting forces are set in motion, which ultimately tend to bring the depression
phase to end and pave the way or revival. It is followed by recovery phase.
Characteristics of Depression Phase
 Rise in the level of unemployment
 Fall in aggregate income of the community
 Fall in the structure of interest rates
 Reduction in the level of effective demand
 Collapse of MEC and decline in the level of investment
 Contraction of bank credit
 Shrinkage in the volume of output
 Deflation in price level, etc.
Recovery
After the depression has lasted for some time, rays of hope appear on the business horizon.
Pessimism gives place to optimism. Recovery implies the increase in business activities after the
lowest point of depression has been reached. The demand, employment and investment
increases. Commercial banks start to create more credits. The circulation and flow of money start
to increase in the country. Total national income and per capita income starts increasing in the
country and MEC increases during this period. Thus, the cumulative process of increase in
investment, employment, output, income and price will feed upon itself and become self-
reinforcing. Ultimately revival enters into the prosperity phase.

7. Characteristics of Recovery Phase
 Increase in investment in capital industries
 Increase in price level, profit and MEC
 Increase in effective demand
 Increase in employment opportunities
 Improvement on financial market, etc.
Measurement of Economic Stabilization (Control of Trade Cycle)
1. Monetary Policy
Monetary policy refers to the policy of the central monetary authority to control over the
money supply and the credit expansion activity. By the help of various tools, monetary policy
aims to control the economic activities.
At the time of boom, all the economic activities get the expansion. So, the central bank
implements contractionary monetary policy.
Similarly, at the time of depression, all the economic activities get a contraction. The
central bank implements expansionary monetary policy. Expansionary monetary policy aims
to increase money supply and credit expansion activities.
2. Fiscal Policy
Fiscal policy refers to the policy of the government to control over the government
expenditure and receipts. By using various fiscal tools, fiscal policy aims to influence
economic activities.
At the time of boom, the government adapts contractionary fiscal policy by reducing
government expenditure, increasing taxes or using surplus budget.
Similarly, at the time of depression, government adapts expansionary fiscal policy by
increasing government expenditure, reducing taxes or using deficit budget.

8. 3. Direct Controls
Direct controls aims to ensure proper allocation of scarce resources. Such controls are in
the form of licensing, rationing, price and wage control, export and import duties, exchange
rate controls, quota and so on. The effectiveness of these measures depends on the
administrative efficiency and honesty of the government.