Characteristics of Business Cycle
The business cycle occurs periodically in a wave-like fashion with varying magnitude affecting not only the entire economy of the country but also making its impact on economies of other countries. Let us discuss its features / characteristics in detail.
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.
Besides these features, the American Economic Association stressed the following important characteristics of the business cycle.
1. Generally, prices and production fall or rise together. The exception is agriculture in which, during the downward phase of the cycle, prices will be falling but production will be increasing. The reason is, with falling prices of agricultural commodities, the farmers would try to produce more to offset the loss of falling prices of their produce and maintain the same level of income.
2. Fluctuations in output and employment will be greater in capital goods industries than in consumption goods Industries.
3. Phenomenal changes in employment, output and price level will be normally accompanied by changes in currency, credit and velocity of circulation of money in the same direction.
4. Prices of agricultural goods will be flexible while the prices of
5. Prices of agricultural goods will be flexible while the prices of manufactured goods will be comparatively rigid as they will be kept stable by the manufacturers.
6. Profits fluctuate by a larger percentage than the other types of
7. Profits fluctuate by a larger percentage than the other types of income.
8. Fluctuations will spread throughout, as industries are interconnected and the cyclical fluctuations tend to be international in the sense that the prosperity or adversity will affect the foreign countries, through international trade.