Four Phases of the Business Cycle

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Four Phases of the Business Cycle

Four Phases of the Business Cycle Prosperity Phase: Expansion or Boom or Upswing of economy Recession Phase: From prosperity to recession or downward turn Depression Phase: Contraction or Downsizing of the economy Recovery Phase: from depression to prosperity or upward turn

Prosperity Phase High level of output and trade High level of effective demand High level of income and employment Rising interest rates Large expansion of bank credit Overall business optimism A high level of MEC (Marginal Efficiency of Capital) and investment

Recession Phase Economic activity slows Demand starts falling Overproduction of goods Steady decline in: Output Income Employment Prices and profit

Depression Phase Fall in output and trade Fall in income Rise in unemployment Decline in consumption and demand Fall in interest rates Deflation Contraction of bank credit Overall business pessimism Fall in MEC and investment

Recovery Phase Rise in economic activity Rise in demand Increase in investment and production Rise in: Output Income Employment Prices Profits

Four Phases of the Business Cycle

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