Scribd
Upload
14 views3 pages

Economics Project

A trade cycle involves fluctuations in economic activities such as employment, output, and income, characterized by periods of good and bad trade as defined by economists like Mitchell and Keynes. Changes in demand and investment, macroeconomic policies, and money supply significantly influence these cycles, leading to economic booms or busts. External factors like wars, technology shocks, natural disasters, and population growth also impact economic stability and activity.

Uploaded by

tanuvispeaks
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
14 views3 pages

Economics Project

A trade cycle involves fluctuations in economic activities such as employment, output, and income, characterized by periods of good and bad trade as defined by economists like Mitchell and Keynes. Changes in demand and investment, macroeconomic policies, and money supply significantly influence these cycles, leading to economic booms or busts. External factors like wars, technology shocks, natural disasters, and population growth also impact economic stability and activity.

Uploaded by

tanuvispeaks
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

A trade cycle refers to fluctuations in economic activities specially in employment, output and income,

prices, profits etc. It has been defined differently by different economists. According to Mitchell,
“Business cycles are of fluctuations in the economic activities of organized communities. The adjective
‘business’ restricts the concept of fluctuations in activities which are systematically conducted on
commercial basis. The noun ‘cycle’ bars out fluctuations which do not occur with a measure of
regularity”. According to Keynes, “A trade cycle is composed of periods of good trade characterised by
rising prices and low unemployment percentages altering with periods of bad trade characterised by
falling prices and high unemployment percentages”.

] Changes in Demand

Keynes economists believe that a change in demand causes a change in


the economic activities. When the demand in an economy increases the
firms start producing more goods to meet the demand.

There is more output, more employment, more income, and higher


profits. This will lead to a boom in the economy. But excessive demand
may also cause inflation.

On the other hand, if the demand falls, so does the economic activity.
This may lead to a bust, which if it continues for a longer period of time
may even lead to depression in the economy.

2] Fluctuations in Investments

Just as fluctuations in demand, fluctuations in investment is one of the


main causes of business cycles. The investments will fluctuate on the
basis of a lot of factors such as the rate of interest in the economy,
entrepreneurial interest, profit expectation, etc.

An increase in investment will lead to an increase in economic activities


and cause expansion. A decrease in investment will have the opposite
effect and may cause a trough or even depression

3] Macroeconomic Policies
The monetary policies and the economic policies of a nation will also
result in changes in the phases of a business cycle. So if the monetary
policies are looking to expand economic activities by promoting
investment, then the economy booms. On the other hand, if there is an
increase in taxes or interest rates we will see a slowdown or
a recession in the economy.

4] Supply of Money

There is another belief that says that business cycles are purely
monetary phenomena. So changes in the money supply will bring about
the trade cycles. An increase of money in the market will cause growth
and expansion.

But too much money supply may also cause inflation which is adverse.
And the decrease in the supply of money will initiate a recession in the
economy.

External Causes of Business Cycles


1] Wars

During times of wars and unrest, the economic resources are put to use
to make special goods like weapons, arms, and other such war goods.
The focus shifts from consumer products and capital goods. This will
lead to a fall in income, employment, and economic activity. So the
economy will face a downturn during war times.

And later post-war the focus will be on rebuilding. Infrastructure needs


to be reconstructed (houses, roads, bridges, etc). This will help the
economy pick up again as progress is being made. Economic activity
will increase as effective demand will increase.

2] Technology Shocks
Some exciting and new technology is always a boost to the economy.
New technology will mean new investment, increased employment, and
subsequently higher incomes and profits. For example, the invention of
the modern mobile phone was the reason for a huge boost in the
telecom industry.

3] Natural Factors

Natural disasters like floods, droughts, hurricanes, etc can cause damage
to the crops and huge losses to the agricultural sector. Shortage of food
will cause a surge in prices and high inflation. Capital goods may see a
reduction in demand as well.

4] Population Expansion

If the population growth is out of control that might be a problem for


the economy. Basically of the population growth is higher than the
economic growth the total savings of an economy will start dwindling.
Then the investments will reduce as well and the economy will face
depression or a slow down.

You might also like