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Unit-24: Trade Cycles: Meaning and Types

It may be that depression is short-lived or it may also happen that it stays at the bottom for sufficient Notes
time. But some time or the other limiting forces do come in momentum, which start ending the
contraction phase and strengthen the route for recovery. Like this cycle is completed.

Did You Know? As time passes, production keeps getting less flexible.

24.3 Theories of Business Cycles

Because of all those many resources and conditions which are hidden in cyclical ups and downs, it is
difficult to determine the behaviour of business cycles. As a result of attempts to make them clear, many
theories have come forward. Some consider external reasons and some consider internal reasons to be
responsible for cycles. Some economists divide trade cycle theories in monetary and non-monetary
theories, while others divide them in real, psychiatric, and among those theories which are related to
saving, expense and investment.

Self Assessment

Multiple Choice Questions:
3. Trade cycle is a ............. of capitalistic economy
(a) part (b) small part
(c) sacrifice (d) subject
4. Various economists have .............. trade cycle in various forms.
(a) inaugurated (b) defined
(c) sambhasit (d) none of these
5. Modern economists have reached this conclusion that duration of Juglar cycle is on an
average of ..................
(a) nine and half years (b) seven and half years
(c) twelve and half years (d) five and half years
6. Duration of building cycle is very..............
(a) irregular (b) regular
(c) long (d) short

24.4 Hawtrey’s Monetary Theory of Trade Cycle

According to prof. R.G Hawtrey, “Trade cycle is a complete monetary Problem.” It is the change in
demand flow of money from the side of traders as a result of which prosperity and depression come
in the economy. Their opinion is that strike, flood, earthquake, drought, war etc non-monetary reason,
if much happen, may bring partial depression , bring rise, by which, changes happen in demand for
money from the side of producers and traders. In today’s era, bank credit only is the main source of
payment. Banking process only, by increasing or decreasing interest rates or by buying securities or
selling them in the hands of traders, increase or decrease credit. By this flow of money in the economy
increases or decreases and like this prosperity or depression comes in the economy.

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