The term ‘trade cycle’ is used by economists to designate a periodic increase and decrease in an economy’s production and employment. Economists study business cycles because they have a significant impact on all aspects of an economy. The occurring of different types of changes in the economy is known as trade cycle. Regular changes in the economy create fluctuations in the economic equilibrium. Such regular and continuous changes in the economy are the feature of trade cycle. On the basis of these facts, the main characteristics of trade cycle can be explained as follows:
The process of trade cycle is regular. In other words, another phase is created immediately after the end of one state. Thus, in an economy the phases of prosperity and depression appear again and again. According to the economist Hansen, the general time period of the trade cycle is from 7 years to 10 years.
(ii) Cyclical Nature:
The nature of trade cycle is generally cyclical. That is, after the creation of trade cycle the ups and downs fluctuations will be of recurrent and repetitive pattern. As a result, in the economy depression occurs after the state of prosperity and prosperity after the state of depression continuously and cyclically.
(iii) Wave-like movement:
Movement of the trade cycle is just like the sea-waves. In capitalistic economy depression after prosperity and prosperity after depression occur in wave-like movement. Among these movements of wave, some times is excessively powerful and sometimes is less powerful.
(iv) Cumulative nature:
The depression that appears in trade cycle is of cumulative in nature. It has self-reinforcing characteristic. The state of prosperity and the state of depression that occur in the trade cycle are of cumulative nature.
(v) Universal Nature:
The nature of trade cycle is universal, or, the characteristics of trade cycle are an international. Almost all the countries of the world are interrelated due to international in some ways and the prosperity or depression of one country influences to the other countries.
Synchronism is another feature of trade cycle. When started at any sector of the economy it is not confined to that sector only, rather it expands to other sectors of the economy. Trade cycle simultaneously affects all the parts of the economy. If the state of prosperity or boom period once appears, the state of prosperity exists in all other parts of the economy.
(vii) Effects on monetary factors:
Trade cycle affects the monetary factors in the economy. When the state of economic prosperity is in the country, then demand for money will increase. For this the bank and financial institutions will increase. The rate of credit creations, but in the state of depression this will decrease. Thus, with change of production are the employments, the circulation of money also changes. Economist J.M. Keynes has defined it as credit cycle.
In general, trade cycles are macroeconomic phenomenon. It may start in one sector initially but it is soon transmitted to the other sectors of the economy.