Causes of Business Cycle – The Crucial Indicators Affecting Business

Nature is diversified, so the humans too. Humans tried to be economically prosperous by using different art and tricks of business. In ancient times they use to adopt hunting, fishing and by farming and crops to survive economically. They often use barter system in this regard. When there are prosperous times in economy & business so does depression/recession exit also, whether look at the lives of humans in 11^th century or whether of today we find business cycle in every era.

In all Phases of Business Cycle, businesses face different things. Sometimes they are busy and making hundreds of dollars and sometimes spending from capital. All the phases are backed by factors affecting

Causes of Business Cycle

There are two types of factors affecting business cycle,

1) Internal Causes and

2) External Causes

Combination of both or any of the parent or child cause may effect.

Internal Causes of Business Cycle

Psychological Causes

Business cycle are also caused by psychological causes. In business circle two school of thoughts exists. Optimistic & Pessimistic psychology of entrepreneurs. Optimistic thinking towards business and development brings more employment, profit, demand and boom in national economy. Pessimistic psychology relates to negativity about business investment which brings unemployment, loss in business, and less demand of products.

Economic Disturbances

A business cycle always occurs when the rate of capital go down. Similarly boost up in the economy can be measured when rate to capital goes up.

Another factor which causes the business cycle is the interest rate for business loans. When a heavy interest rate is introduced by banks ultimately it creates hurdle in economic peak.

Lack of Investments

During the phase of depression and trough lack of investments towards business can be observed. The same situation can be seen in wars, national disasters and climate changes in a country. When there is less investment in business ultimately can be the result.

Public Demand and Supply

In economic prosperity phase, a balance between demand and supply can be monitored. Business cycle arises when there is less demand for products from the public and excessive supply is available. If there are more demand and less supply from producers it also causes inflation.

External Causes of Business Cycle

Political Changes

An economic cycle can also appear due to political change in a country. By the change of government, new leadership plan and implemented new policies best suited to their interest and usually avoid the continue plans of the x government. This change caused a great set back for the national economy as well as a loss of money and honour at international level. This practice can be observed in the U.S.A, UK, Germany and other countries as well. After the end of the tenure of PPP in 2013, the newly elected government avoid many existing plans of the x government, the same case is with India & United States.

Wars

Wars are also an important factor in the business cycle. During War times most of the national revenue is used in the manufacturing and purchasing of weapons, and war materials. That’s why wars are called freezing times for the economy of any nation. They throw a nation back to 10 years of its economy.

Post War Rehabilitation

After wars it mat take 10/15 years for a country to rise up again economically. In first and second world wars participating countries like USA, UK, RUSSIA, TURKEY, GERMANY, ITALY, SPAIN, CHINA, AUSTRIA, HUNGARY, FRANCE wars caused a great loss to the industry, agriculture, transportation, housing and humans too. After the war years, a nation has to rehabilitate itself by using its available economic resources. In these situations, the national economy is overlooked and to rehabilitate the country becomes the utmost priority of government which caused a set back to the national economy.

Natural Disasters

Natural Calamities like Floods, Earthquake, droughts and hurricanes also caused a national economy to go down. A nation may face agriculture destruction or loss in production in floods, destruction of business and infrastructure in earthquakes and may have to spend more on importing the eatables in drought phases.

Natural calamities take a long time to cover up from. They may also cause a business cycle of recession or depression due to much expenditure on rehabilitation.

New Trends in Business

Due to the rapid and new trends in the international market, a nation may face a business cycle. The era of 1990-2017 can be viewed as an example to check and analyze the advancements in the field of Mobile Phones and Information Technology. By the changing of business market and trends users also change their lifestyle as per the modern trends.

With the arrival of new trends in business, no one can not overlook the current demand of time, they have to pay and invest in that specific new market so as to meet the needs of global economic trends. This new investment can also be the cause of depression for a national economy.

Population Expansion

The business cycle can also be seen in the countries having rapid expansion in population. Due to the increase in population, it becomes almost impossible for a government to provide the basic necessities to the citizens. When there is an immense increase in population, ultimately demand of edibles, clothes and housing arises. Under Developed countries can be the example, where a majority is living; they’re below the average, unemployed or working on lowest wages, living on roads, have no food to eat not even the basic medical and educational facilities. In this situation, the economy has to bear a difficult time to rise up again.

Weather & Climate Changes

Trade Cycle can also occur due to the change of weather or climate in different parts of the world. Agricultural countries can be the victim of the business cycle due to the sudden changes in weather. If heavy and unexpected rainy season starts in summer, ultimately it will result in low wheat production. The economy relies on agriculture which has a 70%  share in the economy.

In contrast to summer, the winter season is called recession/ depression phase in Europe because due to the worst season business get a setback, labours effected the most, they are fired or are offered limited jobs in that times in lieu of low wages. Supply of raw material to businesses got late due to the odds of weather and transportation issues.