Q.(a) Describe the phases of Trade Cycle.

(a) A trade cycle passes through four phases — prosperity (boom), recession, depression and recovery. (b) Public debt is government borrowing (internal + external) to bridge its deficit; the primary deficit is the fiscal deficit minus interest payments.

(a) Phases of the Trade Cycle

A trade (business) cycle is the recurring pattern of ups and downs in economic activity over time. Its four phases are:

• Prosperity (Boom): A period of high output, employment, income, investment, rising prices and profits. Business optimism is high and economic activity is at its peak.
• Recession: The turning point when the boom ends. Demand, investment, output and employment begin to fall; business confidence weakens and the downturn spreads through the economy.
• Depression: The lowest phase, with very low output, widespread unemployment, falling prices, low investment and idle capacity. Economic activity is at its trough.
• Recovery (Revival): The economy begins to pick up — demand, investment, output, employment and prices start rising again, gradually leading back to prosperity, and the cycle repeats.

(b) Notes

(i) Public Debt:

• Public debt refers to the total borrowings of the government to meet the gap between its expenditure and its revenue.
• It is raised from internal sources (the public, banks, financial institutions within the country) and external sources (foreign governments, the IMF, the World Bank and other agencies).
• It is used to finance development, meet emergencies and cover budget deficits, and must be repaid with interest (methods of redemption include a sinking fund, conversion, etc.). …