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.

5. Quick Comparison of Phases

6. Quick Revision Points

• Phases: boom, recession, depression, recovery.
• Indicators: output, income, employment, prices, profits, confidence.

7. Quiz Time 🎯