Trade in any commodity does not always remain in the same state of activity. Sometimes it improves, at other times deteriorates. it is seen that these changes follow one other. That is, a period of good trade is followed by a period of depression. The cycle of these changes is called the Trade Cycle.
During period of good trade, the prices rise, the unemployment percentage goes low, productive activities and orders increase, profit go up. The wages of workers increases.
During bad trade or 'Slump' prices drop and profits decrease, unemployment increases, productive activities are curtailed and wages are cut. Lower standard of living is focused on majority of population. The wholesale prices fall much in excess of the retail prices. The rate of interest falls.
All these factors, force the management to introduce economic measures in the shape of stoppage of waste, introduction of greater efficiency or even
retrenchment of staff. Thus the cost of production per unit is reduced below its price and a narrow margin of profits starts being earned. The fluctuations
like the swing of a pendulum automatically generate movement in the other direction with equal momentum.
Periods of property contain in themselves seeds of depression. There is a regular time interval in the occurrence boom and slump in trade, which varies from 7 to 10 years peak to peak. These changes do not occur only in India but effect the whole world.
1. The trade cycle is synchronous. That is, the upward and downward movements occur at approximately the same period in all industries. A good business in one industry stimulates business in other industries.
2. Trade cycle is an international feature. Through international trade and foreign exchange, the prosperity or depression spreads to other countries.
3. Boom and slump affect all industries, but not to the same extent. The constructional industries, manufacturing capital goods such as engineering, ship building, aircraft, etc. experience the heaviest fluctuation.
4. The cycle exhibits a wave movement and the different recorded cycles are members of the same family, but no two cycles are exactly similar.
Also See: Causes of Trade Cycle
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