A

PROJECT ON

PRINCIPLES OF ECONOMICS

TOPIC: TRADE (BUSINESS) CYCLE

SUBMITTED TO:

Dr. S. Kispotta Sir,

(FACULTY OF ECONOMICS)

SUBMITTED BY:

MUKESH KUMAR SAHU

Roll No. 24

B.com LL.B ( IV sem)

SESSION : 2018-19

SCHOOL OF LAW

GURU GHASIDAS UNIVERSITY, BILASPUR

 ACKNOWLEDGEMENT

I would like to express my earnest and deepest gratitude to, Dr. S. Kispotta Sir, Faculty of
Economics-I for giving me this opportunity to do a project on such a valuable topic of
“Trade Cycle” I am grateful for the assistance, guidance, and support that were extended
during the course of excellent research. I am also thankful to the college administration for
providing the resources necessary for the research work. I thank my parents and friends for
their moral support and love throughout my research work and project preparation. Above all
I thank the god Almighty for blessing me with the health and vitality to complete this project.

Mukesh Kumar Sahu

Roll Number - 24

B.Com LL.B 4th semester

 Synopsis
TOPIC : TRADE CYCLE

 Introduction

 Meaning of Trade Cycle

 Who measures the Trade Cycle?

 Who manage the Trade Cycle?

 Characteristics of Trade Cycle

 Four Phases Of Trade Cycle :-

 Prosperity Phase 

 Recession Phase 

 Depression Phase 

 Recovery Phase 

 Causes of economic trade cycle

 Conclusion

 Bibliography

Submitted by: – Submitted to: –

Mukesh Kumar Sahu Dr. S. Kispotta Sir,

Roll no. 24 Faculty’s Signature
B.com LLB ( IV sem) .........................

TRADE CYCLE

 INTRODUCTION:

The Trade cycle, also known as the economic cycle or business

cycle, is the downward and upward movement of gross domestic
product (GDP) around its long-term growth trend. The length of a
business cycle is the period of time containing a single boom and
contraction in sequence. These fluctuations typically involve shifts over
time between periods of relatively rapid economic growth
(expansions or booms), and periods of relative stagnation or decline
(contractions or recessions).

Business cycles are usually measured by considering the growth rate

of real gross domestic product. Despite the often-applied term cycles,
these fluctuations in economic activity do not exhibit uniform or
predictable periodicity.

The common or popular usage boom-and-bust cycle refers to

fluctuations in which the expansion is rapid and the contraction severe.

 Meaning of Trade Cycles:

A capitalistic economy experiences fluctuations in the level of

economic activity. And fluctuations in economic activity mean
fluctuations in macroeconomic variables. At times, consumption,
 investment, employment, output, etc., rise and, at other times, these
macroeconomic variables fall.

Such fluctuations in macroeconomic variables are known as business

cycles.

A capitalistic economy exhibits alternating periods of prosperity or

boom, and depression. Such movements are similar to wavelike
movements or seesaw movements. Thus, the cyclical fluctuations are
rather regular and steady but not random. Since GNP is the
comprehensive measure of the overall economic activity, we refer to
business cycles as the short term cyclical movements in GNP.

In the words of Keynes:

“A trade cycle is composed of periods of good trade

characterized by rising prices and low unemployment
percentages, alternating with periods of bad trade
characterized by falling prices and high unemployment
percentages.”

In brief, a business cycle is the periodic but irregular up-and-down

movement in economic activity. Since their timing changes rather
unpredictably, business cycles are not regular or repeating cycles like
the phases of the moon.

 Who Measures the Trade Cycle?

The National Bureau of Economic Research determines business cycle

stages using quarterly GDP growth rates. It also uses monthly economic
indicators, such as employment, real-personal, income, industrial
production and retail sales.
 gain confidence and become optimistic (Positive). This increases
investments. The stimulation of investment brings about the revival or
recovery of the economy. The banks expand credit, business expansion
takes place and stock markets are activated. There is an increase in
employment, production, income and aggregate demand, prices and
profits start rising, and business expands. Revival slowly emerges into
prosperity, and the business cycle is repeated.

Thus we see that, during the expansionary or prosperity phase, there is

inflation and during the contraction or depression phase, there is a
deflation.

 Causes Of Economic Trade Cycle:

 Momentum effect.

When there is positive economic growth, this tends to cause:

 A rise in consumer and business confidence

 With economic growth, banks are more willing to lend, increasing
investment.
 Rising asset prices such as houses; this causes a rise in wealth and
consumer spending. The higher economic growth increases incomes and
causes more demand for housing
 Accelerator theory of investment. This suggests investment
depends on the rate of change of economic growth. An improved growth
rate leads to higher investment.
 Interest rate changes.

When there is higher economic growth, inflation tends to rise. In

response, Central Banks tend to increase interest rates to reduce growth
 and inflation. High-interest rates in 1990-92 were an important cause of
bringing the economic downturn. High-interest rates made mortgages
expensive, reducing disposable income and causing a rise in home-
repossession rates.

 Technology.

Improvements in technology may cause a boost in economic growth. A

lull in technological innovation may cause slower growth.

 Political Business cycle.

Some economists suggest that there is a political business cycle. This is

when politicians try to have a boom (high economic growth) before an
election to help win the election. Since 1997, UK monetary policy has
been given to the independent Bank of England with a remit of keeping
inflation at 2%.

 Global Trade Cycle.

A global economic downturn will tend to affect individual economies.

The recession of 2008/09 occurred in all major global economies.

 Conclusion :

As we have seen, a trade cycle describes the phases of growth and

decline in an economy. The goal of an economic policy is to keep the
economy in a health growth rate fast enough to create jobs for everyone
who wants one but slow enough to avoid inflation. Unfortunately, life is
not so simple. Many factors can cause an economy to spine out of
control, or settle into depression. The most important, overriding factor
is confidence of investors, consumers, business and politicians. The
economy grows when there is confidence in future and in policy makers,
and does the opposites when confidence drops. So a business cycle plays
an important role in studying in factors.