Explain the features and characteristics of a business fluctations in
Answers
Features of Business Fluctuations:
1] Occur Periodically
As we saw, these phases occur from time to time. However they do not occur in for specific times, their time periods will vary according to the industries and the economic conditions. Their duration may vary from anywhere between two to ten or even twelve years. Even the intensity of the phases will be different. For example, the firm may see tremendous growth followed by a shallow short-lived depression phase.
2] They are Synchronic
Another one of the features of business cycles is that they are synchronic. Business cycles are not limited to one firm or one industry. They originate in the free economy and are pervasive in nature. A disturbance in one industry quickly spreads to all the other industries and finally affects the economy as a whole. For example, a recession in the steel industry will set off a chain reaction until there is a recession in the entire economy.
3] All Sectors are Affected
All major sectors of the economy will face the adverse effects of a business cycle. Some industries like the capital goods industry, consumer goods industry may be disproportionately affected. SO the investment and the consumption of capital goods and durable consumer goods face the maximum brunt of the cyclic fluctuations. Non-durable goods do not face such problems generally.
4] Complex Phenomenon
Business cycles are a very complex and dynamic phenomenon. They do not have any uniformity. There are no set causes for business cycles as well. So it is nearly impossible to predict or prepare for these business cycles.
5] Affect all Departments
Trade cycles are not only limited to the output of goods and services. It has an effect on all other variables as well such as employment, the rate of interest, price levels, investment activity etc.
6] International in Character
Trade cycles are contagious. They do not limit themselves to one country or one economy. Once they start in one country they will spread to other countries and economies via trade relations and international trade practices. We have an actual example of this when the Great Depression of 1929 in the USA, later on, had an adverse effect on the entire global economy. So in an integrated global economy like today’s the effects of a trade cycle spread far and wide.
Characteristics of Business Fluctuations:
1. Business cycle occurs Periodically:
The Business cycles occur periodically in a regular fashion. This means the prosperity and depression will be occurring alternatively. But there need not be uniformity in the extent and magnitude. Though the general structure of different cycles may be the same, it may not be perfectly rhythmical in character.
2. It is all embracing:
The business cycle implies that the prosperity or depressionary effect of the phase will be affecting all industries in the entire economy and also affect the economies of other countries. It is international in character. The Great Depression of 1929 is an example of this.
3. Business Cycle is wave-like:
The business cycle will have set pattern of movements which is analogous to waves. Rising prices, production, employment, and prosperity will become the features of upward movement. Falling prices, unemployment will become the features of the downward movement.
4. Process of Business Cycle is cumulative and self-reinforcing:
The upward movement and downward movement are cumulative in their process. When once the upward movement starts, it creates further movement in the same direction by feeding on itself. This movement will persist till the forces accumulate to alter the direction and create the downward movement. When a downward movement starts, it persists in the same direction leading to the worst depression and stagnation till it is retrieved to gain an upward movement.
5. The cycles will be similar but not identical:
Different cycles and waves in the business cycles will be similar in general features, but they are not identical in all respects.
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