WHAT IS A TRADE CYCLE AND ITS FEATURES?

Trade cycles are cyclical fluctuations that are characterized by alternating waves of expansion and contractions which have no fixed pattern and rhythm. Trade cycles are also known as business cycles.

FEATURES OF TRADE CYCLE:

1) Trade cycle is recurrent but not periodic: Trade cycles are not periodic and do not occur on a regular basis. Patterns of the trade cycle are irregular but recurrent. It has a standard pattern of contraction, trough, expansion and recession.

2) Comovement of variables: An economy has many variables like aggregate demand, employment, investment, aggregate supply, etc. All variables move together with a pattern. During expansion, variables will rise whereas during contraction variables will fall.

3) Fluctuation in aggregate economic activity: Trade cycles are fluctuations in aggregate economic activity rather than changes in one variable or some specific variables. The Trade cycle is fluctuations in each and every variable.

  4) Expansion: Features  of expansions are

a) Increase in consumption, production and aggregate demand.

b) Increase in employment and wage level.

c) Increase in prices of goods and services as well as prices of factors.

d) Increase in credit, investment and profits.

5) Contraction: Features of contractions are

a) Fall in consumption, production and aggregate demand.

b) Decrease in employment and wage level.

c) Decrease in prices of goods and services as well as prices of factors.

d) Decrease in employment and wage level.