Phases of Business Cycle – Boom, Recession, Depression, Recovery
Business cycle has distinct phases. Understanding them is important for exam and business planning.
1. Boom (Peak)
Features:
- High level of output, income and employment.
- High consumer and business confidence.
- Rising prices and profits.
- High investment and credit expansion.
2. Recession
Recession is a phase in which output, income, employment and trade start declining from the peak.
Features:
- Fall in demand for durable goods.
- Inventory accumulation.
- Reduced investment.
- Slowdown in credit growth.
3. Depression (Trough)
Depression is a severe and prolonged recession with very low output, income and employment.
Features:
- High unemployment.
- Very low business confidence.
- Low prices and low profits (or losses).
- Excess capacity in industries.
4. Recovery
Recovery is the phase in which economic activity starts increasing from the lowest point.
Features:
- Gradual increase in demand, output and employment.
- Improvement in business expectations.
- Increase in investment.
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5. Quick Comparison of Phases
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6. Quick Revision Points
- Phases: boom, recession, depression, recovery.
- Indicators: output, income, employment, prices, profits, confidence.
7. Quiz Time 🎯
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