Phases of Business Cycle

Business cycles are characterized by one-time development and the next collapse in the
country's economic activities.
These fluctuations in economic activity are called phases of the business cycle.
Flexibility compared with descent and flow. The fluctuations in the global economy reflect
the diversity of economic activities in terms of production, investment, employment,
credits, prices, and wages. Such changes represent different stages of business cycles.

The Phases of Business Cycles are as follows:

There are two key stages in a business cycle: prosperity and depression. Other categories
are expansion, elevation, alignment and reversal of intermediate phases.

1. Expansion: The cycle line that goes beyond the steady growth line represents the
expansion phase of the business cycle. In the expansion phase, there is an increase in
various economic factors, such as manufacturing, employment, wages, profits,
demand and supply, and sales..

Additionally, in the expansion phase, the prices of the factor of production and output
rise simultaneously. At this stage, creditors are generally in a good financial position
to pay off their debts; therefore, lenders lend money at a higher interest rate. This
leads to rise in revenue.

In the expansion phase, due to increased investment opportunities, the idle funds of
organizations or individuals are used for various investment purposes. Therefore, in
such a case, the inflow and outflow of businesses are equal. This increase continues
until economic conditions permit.

2. Peak: Growth in the expansion phase eventually decreases and reaches its peak.
This phase is known as the peak phase. In other words, the upper level refers to the
stage at which the increase in the growth rate of the business cycle reaches its
maximum limit. At the highest level, economic factors, such as production,
profitability, sales, and employment, are high, but not very high. At the higher end,
there is a gradual decline in demand for various products due to rising input prices.

An increase in input prices leads to an increase in the prices of final products, while
the per capita income is constant. This also leads consumers to redesign their monthly
 budget. As a result, demand for products, such as jewellery, homes, cars, refrigerators,
and other durable items, is beginning to decline.

3. Recession: As mentioned earlier, in the above section, there is a gradual decline

In the economic downturn, all aspects of the economy, such as production, prices,
savings and investments, begin to decline. Generally, manufacturers are not aware of
the decline in demand for products and continue to produce goods and services. In
such a case, the supply of products exceeds the need.

Over time, manufacturers realize the supply chain where production costs are higher
than the profit generated. This situation was initially experienced by a few industries
and gradually spread to all industries.

4. Trough: During the food sector, the country's economic activity declined to below
normal levels. At this stage, the rate of economic growth becomes worse.
Additionally, in the food sector, there is a rapid decline in income and country
spending.

At this stage, it becomes difficult for debtors to pay off their debts. As a result,
interest rates drop; therefore, banks do not recommend borrowing money. Therefore,
banks are facing an increase in the balance of payments.

Apart from this, the level of economic impact of the country is declining and
unemployment is high. Moreover, in the latter case, investors do not invest in the
stock market. In the latter case, many weaker organizations leave the industry or
disintegrate. At this point, the economy is reaching a very low level of decline.

5. Recovery: As discussed above, in the food sector, the economy reaches a very
low level of decline. This is the lowest level where the economy is depleted. If the
economy affects a very low level, it may be the end of negativism and the beginning
of positivism.

This leads to a reversal of the business cycle process. As a result, individuals and
organizations are beginning to develop a healthy attitude toward various aspects of the
economy, such as investment, employment, and productivity. This reversal process
begins in the labour market.

As a result, organizations no longer lay off individuals and start hiring but for a
limited amount. At this stage, the salaries provided by organizations to individuals are
small compared to their skills and abilities. This spots the beginning of the recovery
phase.

In the recovery phase, consumers increase their consumption rate, as they think there
will be no further reduction in product prices. As a result, the demand for consumer
products is increasing.
In addition to the repayment phase, banks are beginning to use their accumulated cash
balance by reducing borrowing rates and increasing investment in various securities
and bonds. Similarly, adopting a constructive approach other private investors are also
beginning to invest in the stock market As a result, security rates are rising and
interest rates are declining.

The pricing model plays a very important role in the economic recovery phase. As
discussed earlier, during the recession the rate at which the factor of production falls
is greater than the rate of decline in the prices of final products.

So producers are always able to get a certain amount of profit, which goes up the food
stage. Profit growth also continues in the recovery phase. Apart from this, in the
recovery phase, some of the reduced goods are replaced by the manufacturers and
some are kept by them. As a result, investment and corporate employment are
increasing. As the program grows the economy re-enters the expansion phase. Thus,
the business cycle ends.