TRADE CYCLES

Fluctuations taking place in Fluctuations taking place in an economy at intervals in an economy at intervals in the form of boom and the form of boom and depression are called trade depression are called trade cycles.cycles.

TYPES OF TRADE CYCLESTYPES OF TRADE CYCLES

Major cyclesMajor cyclesMinor cyclesMinor cyclesVery long cyclesVery long cycles

Major cyclesMajor cycles : : These are of These are of the duration of 8 to 12 years. the duration of 8 to 12 years. They were first explained by They were first explained by French economist Juglar. Hence French economist Juglar. Hence they are called Juglar cycles.they are called Juglar cycles.

MINOR CYCLESMINOR CYCLES : : Duration of Duration of these cycles is from 2 to 5 years. They these cycles is from 2 to 5 years. They were first mentioned by an English were first mentioned by an English economist Kitchen. Henceeconomist Kitchen. Hence they are they are called Kitchen cycles.called Kitchen cycles.

VERY LONG CYCLESVERY LONG CYCLES : :These These are the cycles with their are the cycles with their duration ranging from 50 to 60 duration ranging from 50 to 60 years. These first referred by years. These first referred by Russian economist Russian economist Kondratieff. Hence they are Kondratieff. Hence they are called Kondratieff cycles.called Kondratieff cycles.

PHASES OF TRADE CYCLESPHASES OF TRADE CYCLES

Expansion or BoomExpansion or BoomRecessionRecessionDepression or ContractionDepression or ContractionRecoveryRecovery

EXPANTION OR BOOMEXPANTION OR BOOM The economy reaches at full employment.The economy reaches at full employment. Prices rises very high.Prices rises very high. Wage rate is very high.Wage rate is very high. Income or production is maximum.Income or production is maximum. Traders and industrialists earn huge Traders and industrialists earn huge

profits.profits. Expansion in bank credit.Expansion in bank credit. Increase in consumption expenditure.Increase in consumption expenditure. Increase in investments. Increase in investments.

RECESSIONRECESSION

• There is fall in income and output.• Unemployment.• Prices begin to fall.• Wages falls.• Profits fall.• Contraction of bank credit.• Fall in investment.• Demand falls.

DEPRESSION OR DEPRESSION OR CONTRACTIONCONTRACTION Unemployment increases.Unemployment increases. Level of output is low. Level of output is low. Wages, interest and cost decline.Wages, interest and cost decline. Price level falls.Price level falls. Volume of profit falls.Volume of profit falls. Demand for credit falls.Demand for credit falls. Demand for capital goods falls.Demand for capital goods falls. Demand for consumer goods falls.Demand for consumer goods falls. Decline in investmentsDecline in investments..

RECOVERYRECOVERY

►Demand for consumption and production Demand for consumption and production goods rises.goods rises.

►Employment increases.Employment increases.►Prices begin to look up.Prices begin to look up.►More profits.More profits.► Investments increases.Investments increases.►Demand for bank loan and advances Demand for bank loan and advances

increases.increases.► Increase in income and output.Increase in income and output.

METHODS TO CONTROL TRADE METHODS TO CONTROL TRADE CYCLESCYCLES

Monetary policyMonetary policyFiscal policyFiscal policy

MONETARY POLICYMONETARY POLICY

Monetary policy refers to the Monetary policy refers to the regulation and control of flow of regulation and control of flow of credit, supply of money and rate of credit, supply of money and rate of interest in the economy with a view interest in the economy with a view to restore economic stability.to restore economic stability.

FISCAL POLICYFISCAL POLICY

• Fiscal policy is the policy concerning the revenue and the expenditure and debt of the government for achieving definite objectives.