CONCEPT AND PHASES OF TRADE CYCLE

Broadly speaking, the trade or business cycles are those fluctuations which recur in economic activity with a certain degree of regularity following a pendulum like oscillations. According to Wesley Clair Mitchell, who did a pioneering work in this field business cycles are a type of fluctuations found in the aggregate economic activity of nations that organise their work mainly in business enterprises. A cycle consists of expansions occurring at about the same time in many economic activities followed by similarly general recessions, contractions and revivals which merge with the expansion phase of the next cycle, this sequence of change is recurrent but not periodic. This definition reveals that business cycles are fluctuations in the aggregate economic activity and therefore are concerned with the economy as a whole. Apart from this business cycles are confined to only those fluctuations which recur with regularity. Keynes has described the concept and characteristics of trade cycle in the following words.

By a cyclical movement we mean that as system progresses in e.g. the upward direction, the forces propelling it upwards at first gather force and have a cumulative effect on one another but gradually lose their strength until at a certain point they tend to be replaced by forces operating in the opposite direction, which in turn gather force for a time and accentuate one another, until they too having reached their maximum development, wane and give place to their opposite. We do not however, merely mean by a cyclical movement that upward and downward tendencies, once started ,do not persist for ever in the same direction but are ultimately reversed. We mean also that there is some recognisable degree of regularity in the time sequence and duration of the upward and downward movements.

There is, however another characteristic of what we call the Trade Cycle which our explanation must cover if it is to be adequate namely, the phenomenon of the crisis the fact that the substitution of a downward for an upward tendency takes place suddenly and violently, whereas there is, as a rule, no such sharp turning point when an upward is substituted for a downward tendency.