Business Cycle Definition and Types

Wed, 06/27/2012 - 09:37 -- Umar Farooq

Definition of Business Cycle Or Trade Cycle

Mitchell defined the business cycle (trade cycle) as a fluctuation in aggregate economic activity, Business cycle is also known as trade cycle. In the study of economic activity, four types of economic changes or fluctuations can be distinguished:

  • Trends
  • Seasonal
  • Irregular or random
  • Cyclical

Trend

Trend is the overall directional movement in the economy over an extended period of time, 30-50 years.

A line representing the trend usually shows an upward or downward movement. The trend shows average growth or decline over a period of time.

Seasonal Variation

These are fluctuations in economic activity during a given period, usually a year. Changes in agricultural production and employment are caused by weather. Weather also causes change in the production of construction, coal and dockyard workers. Customs and convention may encourage more purchases in Ramadan, Holi and other religious and culture activities. Such fluctuations are caused by artificial and conventional forces.

Irregular Fluctuation

These are changes in business activity resulting from some unexpected or unusual event. Such factors are floods, drought, earth-quake, locust invasion, wars, pestilence, fire, strikes, political disturbances, a change in the currency, a rapid increase in population or the passage of certain types of legislation—all those which can affect the economy as a whole.

Cyclical Fluctuations

These are fluctuations in the level of business activity that would come about even though there were not trend, seasonal or irregular factors. (Cycles are caused by forces within economy itself). The economy operates in such a way that it tends to accelerate at times, but in so doing it builds up the forces which will eventually bring about a deceleration in the economy.


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