are to be taken into consideration and help to determine the stages of different people in different stages of the cycle. Minor trade cycles operate for 3-4 years, while major trade cycles operate for 4-8 years or more. Let us discuss one by one. Phases are Cumulative: Expansion and contraction in a trade cycle are cumulative, in effect, i.e. Rent, wages, interest do not rise in the same proportion as prices. According to Keynes, “A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentages altering with periods of bad trade characterized by falling prices and high unemployment percentages”. Content Filtrations 6. Theory of under consumption 3. Your email address will not be published. In fact, the profit-inflation and over-optimism which increase the tempo carry with them the seeds of self- destruction. The ups and downs in the economy are reflected by the variation/fluctuation in macroeconomics variable such as GNP, investment, profits, price, employment, wages etc. Depressionary phase — contraction or downswing. Content Guidelines 2. A slump or a depression is a prolonged and deep recession leading to a significant fall in output and average living standards; A depression is where real GDP falls by more than 10% from the peak of the cycle to the trough Required fields are marked *. Therefore, credit sharply contracts. Slump or Depression :- In the period of depression economic activities are low and there is a fall in the national income, employment and production. Recovery 3. Climate theory 2. A business cycle … Monetary theory 4. Everyone feels pessimistic about the future profitability of investment. Liquidation in the stock market, repayment of bank loans and the decline of prices are its outward symptoms. All the steps involved in a trade, from the point of order receipt (where relevant) and trade execution through to settlement of the trade, are commonly referred to as the ‘trade lifecycle’. This suggest… There are many factors at work, and they cannot be quantified and measured to enable decision making. This time around, we are having a look at the phases of a depression. For, during a depression, businessmen postpone replacement of their plant and machinery and consumers postpone the purchase of durable goods. Last time, we started a discussion on a few phases of the business cycle. Peak: The upper turning point of a business cycle and the point at which expansion turns into contraction. It has been defined differently by different economists. increasing or decreasing progressively. Reduced income causes a decrease in aggregate expenditure and thus, the general demand falls, in turn, prices, profit and business decline. Psychological theory Climate Theory According to 'jeoons', trade cycles are caused by … A bullish atmosphere will prevail on the stock exchanges. Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough. A trade cycle refers to fluctuations in economic activities specially in employment, output and income, prices, profits etc. Decrease in the national income is termed as Economic Recession. After economic recession boom is repeated once gain and when this boom reaches its peak the trade cycle becomes the recession again. Slump or Depression: This is the most critical and fearful stage of a trade cycle. Business Cycle Phase # 1. Boom 4. This is a process of client acquisition in which HNIs or Institutional clients are introduced to various investment products or vehicles. Consequently, the margin of profit improves. Such induced investment will cause a rise in employment and income. In other words, they try to time the market. It lasts relatively for a shorter period of time. Thus, during a recessionary period, the expansionary process will be self-reinforcing and if it is continued for some time, the economy will find itself in a position of rising level of income, output and employment. www.thenatureofmarkets.com. Clues to the mid-cycle phase are not as obvious as other phases of the business cycle so it’s also less obvious when to adjust your investments. front office action. The reality, however, is that the stock market cycles move in similar ways and go through the same phases. But scarcity of resources, particularly, the shortage of raw materials and labour causes bottlenecks and business calculations go wrong. The costs are relatively higher than the prices. Below is a more detailed description of each stage in the business cycle: Bottlenecks begin to appear at the peak of prosperity. This fluctuation between growth and degrowth is natural and part of the boom and decline phase of the business cycle. Phases of Trade Cycles. A lot of information can be gleaned from the various economic indicators and their relationship to the business cycle. The longer the period of investment, the higher shall be the price rise. Slump 2. What are the Steps Involved in a Trade Life Cycle? There are four phases of trade cycle, depression, recovery, boom and recession.