n lation and siness le 7.25
the business cycle. We intend here to understand
the actual meanings of each of the stages.
The discussion on growth and development has Economists have pointed out that the business
shown their internal interdependence. If the cycle is characterised by four phases or stages in
quality of life in an economy is to be enhanced, which economies alternate:
there is a need of conscious public policy which (i) Depression
can spend and invest in areas like food, nutrition,
health, education, shelter, social security, etc.
But for such expenditures and investments, the (iii) Boom
economy needs equitable level of income, too. (iv) Recession
The income enhancement in any economy takes
place via increasing the level of production in the depressIon
economy, i.e., real gross national product (GNP).
It means, development requires higher growth, Though depression has visited the world economy
i.e., higher levels of economic activities. With only once in 1929, economists have pin-pointed
the help of suitable kind of economic policies, enough number of traits to recognise it. The
the government of an economy keeps trying to major traits of depression could be as given below:
maintain a higher level of economic activity. But, (i) an extremely low aggregate demand in the
at times, economy keeps failing in this objective. economy causes activities to decelerate;
And, thus economies fluctuate between the best (ii) the inflation being comparatively lower;
and the worst levels of economic activities which
(iii) the employment avenues start shrinking
is known in economics as boom and depression,
respectively. They can be called different phases forcing unemployment rate to grow fast;
of the economic activities of the economies. In (iv) to keep the business going, production
between boom and depression, there might be houses go for forced labour-cuts or
many other situations of the economic activities, retrenchment (to cut down production
such as—stagnation, slowdown, recession and cost and be competitive in the market,)
recovery. The fluctuations in the level of economic etc.
activity between the depressions and booms has The economic situations become so chaotic
been called by the economists as business cycle or in the phase of depression that governments have
trade cycle with recession and recovery as the main almost no control over the economy. The Great
intermediate stages.75 Stagnation76 and slowdown Depression of 192977 gave rise to the ideas of strong
may be considered as other intermediate stages of
77. A very lively description of the Great Depression has
75. Collins internet-linked Dictionary of Economics, been presented by Lee Iacocca in his autobiography.
Glasgow, 2006 & Oxford Business Dictionary, This is known as the Great Depression due to its
N. Delhi, 2004. length and depth—the economies could recover fully
76. Simon Cox (ed.), Economics (London: The Economists, out of it only by the mid-1940s (Stiglitz and Walsh,
2007), p. 60. p. 495).