Trough and Depression:
- Depression is the severe form of recession and is characterized by extremely sluggish economic activities. During this phase of the business cycle, growth rate becomes negative and the level of national income and expenditure declines rapidly.
- Demand for products and services decreases, prices are at their lowest and decline rapidly forcing firms to shutdown several production facilities. Since companies are unable to sustain their work force, there is mounting unemployment which leaves the consumers with very little disposable income.
- A typical feature of depression is the fall in the interest rate. With lower rate of interest, people’s demand for holding liquid money (i.e. in cash) increases. Despite lower interest rates, the demand for credit declines because investors' confidence has fallen.
- Often, it also happens that the availability of credit also falls due to possible banking or financial crisis. Industries, especially capital and consumer durable goods industry, suuer from excess capacity.
- Large number of bankruptcies and liquidation significantly reduce the magnitude of trade and commerce. At the depth of depression, all economic activities touch the bottom and the phase of trough is reached.
- It is a very agonizing period causing lots of distress for all. The great depression of 1929-33 is still cited for the enormous misery and human suuerings it caused.
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