TRADE CYCLES

Fluctuations taking place in an

economy at intervals in the form
of boom and depression are
called trade cycles.
 TYPES OF TRADE CYCLES

 Major cycles
 Minor cycles
 Very long cycles
Major cycles : These are of
the duration of 8 to 12 years.
They were first explained by
French economist Juglar. Hence
they are called Juglar cycles.
MINOR CYCLES : Duration of
these cycles is from 2 to 5 years. They
were first mentioned by an English
economist Kitchen. Hence they are
called Kitchen cycles.
VERY LONG CYCLES :These
are the cycles with their
duration ranging from 50 to 60
years. These first referred by
Russian economist
Kondratieff. Hence they are
called Kondratieff cycles.
 PHASES OF TRADE CYCLES
 Expansion or Boom
 Recession
 Depression or Contraction
 Recovery
 EXPANTION OR BOOM
 The economy reaches at full
employment.
 Prices rises very high.
 Wage rate is very high.
 Income or production is maximum.
 Traders and industrialists earn huge
profits.
 Expansion in bank credit.
 Increase in consumption expenditure.
 Increase in investments.
 RECESSION
• 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
CONTRACTION
 Unemployment increases.
 Level of output is low.
 Wages, interest and cost decline.
 Price level falls.
 Volume of profit falls.
 Demand for credit falls.
 Demand for capital goods falls.
 Demand for consumer goods falls.
 Decline in investments.
 RECOVERY
► Demand for consumption and
production goods rises.
► Employment increases.
► Prices begin to look up.
► More profits.
► Investments increases.
► Demand for bank loan and advances
increases.
► Increase in income and output.
 METHODS TO CONTROL TRADE
CYCLES
 Monetary policy
 Fiscal policy
 MONETARY POLICY
 Monetary policy refers to the
regulation and control of flow of
credit, supply of money and rate of
interest in the economy with a view
to restore economic stability.
 FISCAL POLICY
• Fiscal policy is the policy concerning
the revenue and the expenditure and
debt of the government for achieving
definite objectives.