Definition:

The business cycle is the natural rise and fall of economic growth that occurs over time. The cycle is a
useful tool for analyzing the economy. It can also help you make better financial decisions.

Stages of Business Cycle:

Business cycle is divided into the following four phases:

1. Prosperity Phase: Expansion or Boom or Upswing of economy.

2. Recession Phase: from prosperity to recession (upper turning point).
3. Depression Phase: Contraction or Downswing of economy.
4. Recovery Phase: from depression to prosperity (lower turning Point).

Diagram of Four Phases of Business Cycle

The four phases of business cycles are shown in the following diagram:

The business cycle starts from a trough (lower point) and passes through a recovery phase followed by a
period of expansion (upper turning point) and prosperity. After the peak point is reached there is a
declining phase of recession followed by a depression. Again the business cycle continues similarly with
ups and downs.

1. Prosperity Phase

When there is an expansion of output, income, employment, prices and profits, there is also a rise
in the standard of living. This period is termed as Prosperity phase.

The features of prosperity are:-

1. High level of output and trade.

2. High level of effective demand.
 3. High level of income and employment.
4. Rising interest rates.
5. Inflation.
6. Large expansion of bank credit.
7. Overall business optimism.
8. A high level of MEC (Marginal efficiency of capital) and investment.

Due to full employment of resources, the level of production is Maximum and there is a rise in GNP
(Gross National Product). Due to a high level of economic activity, it causes a rise in prices and profits.
There is an upswing in the economic activity and economy reaches its Peak. This is also called as a Boom
Period.

2. Recession Phase

The turning point from prosperity to depression is termed as Recession Phase.

During a recession period, the economic activities slow down. When demand starts falling, the
overproduction and future investment plans are also given up. There is a steady decline in the
output, income, employment, prices and profits. The businessmen lose confidence and become
pessimistic (Negative). It reduces investment. The banks and the people try to get greater
liquidity, so credit also contracts. Expansion of business stops, stock market falls. Orders are
cancelled and people start losing their jobs. The increase in unemployment causes a sharp
decline in income and aggregate demand. Generally, recession lasts for a short period.

3. Depression Phase

When there is a continuous decrease of output, income, employment, prices and profits, there is a
fall in the standard of living and depression sets in.

The features of depression are :-

1. Fall in volume of output and trade.

2. Fall in income and rise in unemployment.
3. Decline in consumption and demand.
4. Fall in interest rate.
5. Deflation.
6. Contraction of bank credit.
7. Overall business pessimism.
8. Fall in MEC (Marginal efficiency of capital) and investment.
In depression, there is under-utilization of resources and fall in GNP (Gross National Product).
The aggregate economic activity is at the lowest, causing a decline in prices and profits until the
economy reaches its Trough (low point).

4. Recovery Phase

The turning point from depression to expansion is termed as Recovery or Revival Phase.

During the period of revival or recovery, there are expansions and rise in economic activities.
When demand starts rising, production increases and this causes an increase in investment. There
is a steady rise in output, income, employment, prices and profits. The businessmen gain
confidence and become optimistic (Positive). This increases investments. The stimulation of
investment brings about the revival or recovery of the economy. The banks expand credit,
business expansion takes place and stock markets are activated. There is an increase in
employment, production, income and aggregate demand, prices and profits start rising, and
business expands. Revival slowly emerges into prosperity, and the business cycle is repeated.

Thus we see that, during the expansionary or prosperity phase, there is inflation and during the
contraction or depression phase, there is a deflation.

Entrepreneurial Culture:

Culture is defined a set of values, perceptions, attitudes, beliefs, customs and behavior shared by
members of a group or society. It has also been defined a collective programming of the mind which
distinguish the member of one group or category of people from another.

Entrepreneurial culture is a way of embracing the concept of finding new opportunities in business and
gathering the necessary resources to fill the opportunity.

Cultural Habits that promoter Entrepreneurial Development:

 1. Money Orientation:

A person who is money oriented is the one who knows the value of money and has intention of making
it. A person who is money oriented can use the need for money as motivating factor. He knows where
he can get money to provide for his capital if he get involved in entrepreneurship activity, he will make
more capital.

2. Future Orientation:

A society that has foresight to know about future business environment is likely to have money
entepreneurs. This is because entrepreneur will learn to visualize the likely changes that take place in
the market, customer attitude, technological developments etc and take action accordingly. Thus
entrepreneurs are future oriented and usually belong to cultures that appreciate the value of foregoing
immediate profit of satisfaction in favor of larger future rewards.

3. Time Consciousness:

This is the knowledge that time exists and its importance. Knowing the right time to start a
entrepreneurial activity is vey important. Time is a resource and should be utilized well. Aspiring
entrepreneur should group the market conditions and wait for the correct time to establish his/her
enterprise.

4. Work Ethics:

A culture that looks at work as a duty and it must value honest, productive labor while punishing laziness
promotes entrepreneurship. Trust and honesty is very important in entrepreneurship consumers will
buy an entrepreneur products or service because of the trust that they have with their producers.
Entrepreneur should appreciate this trust by ensuring that they maintains honest to their consumers
through maintaining the standard of their products at all times.

5. Handwork:

Willingness to work hard distinguishes a successful entrepreneurial event activities when other people
who do not think they can achieve much.

6. Social Status:

A culture that promotes entrepreneurship is one that confers social ranks in terms of actual
achievement rather than circumstances of birth. The caste system of India, for instance, where peoples
are divided into distinct classes such as the priests, the landowners, the traders, the farmers, the
craftsmen and the untouchable, is a system that emphases on birth rather than achievement. In such as
system, one who is born a farmer caster holds the status whether or not he is a good farmer. No one
moves from one rank to another. No one moves from one rank to another. On the other hand, on a
culture that encourages entrepreneurship, a person can move up or down the ladders of the society
depending upon his accomplishment. One can get rich by honest and hard work even if he was born to a
beggar.

7. Ideals of Competition:

Entrepreneurship flourishes under a climate of competition that stimulates the competing parties to
find ways of using and managing their resources more efficiently and more productively rather than one
that encourages unfair trade practice like underpricing, low quality products, etc.

8. Rewards:

A culture that desires to develop more entrepreneurs must reward people who try to earn money from
these humble ventures like peddlers and vendors. This is because studies has shown that many of the
current businessmen started as vendors. So such trade practices should be viewed with admiration and
praises.

Cultural Factors that Inhibit Entrepreneurial Development:

1. Religion:

It plays an important role in limiting entrepreneurial development. Religious beliefs are regarded by
others and the society as control of behavior. For instance, a strong Christian believer will not engage in
entrepreneurial activity that is against their beliefs for example setting of a night club or a bar. This
limits entrepreneurial development because even f an opportunity arises and they have resources, they
will not establish the business, they will not dare do so because of their Christian faith.

2. Language:

A person may want to establish a business enterprise in an area where he sees an opportunity to do so
but, he may not have the knowledge of the people in that particular area. Communication will therefore
be a barrier. People also tends to appreciate or to identify with people who speak their language and
therefore this will deny the entrepreneurial development because even if an opportunity irises and they
have resources, they will deny the entrepreneur the opportunity to establish a relationship with his or
her customer.

3. Personal Relationship:

Personal relationship also plays a major role in limiting the development of entrepreneurship. Married
people for example will not want to get involved in business activities that will not spare them time to
be with their families even if opportunities arises. A person who has effective interpersonal relationship
skills is likely to be a successful entrepreneur.

4. Attitude Toward Innovation:

Innovations are necessary for entrepreneurial growth. Many cultural practices are opposed to
innovation. People are not aware of the importance of innovations towards development. People will
always resist change because it is new and they fear that new things will interfere with their believes
and customs. When people have poor attitude towards innovations, the development of
entrepreneurship become difficult.

5. Networks:

This is a way through which a person is able to meet people and get information concerning the
available business opportunities. Establishing good networks is very important for entrepreneur.
Without proper information, once cannot establish a business enterprise.

6. Beliefs:

Beliefs are the existence of all powerful forces that control all destines. They tend to hinder
entrepreneurship development.

7. Technology:

The advancement in technology in the society and business can be attributed to technology. Technology
limits entrepreneurship development because many people have not acquired technical skills and
knowledge required.

8. Mentality:

The mentality we have that anything imported is better limits the creativity of our entrepreneurs and
also reduces the market of local produced goods.

9. Extended Family Issue:

This is where the extended family may not want to be given free things or unlimited credit. This make
them lazy and hinders their entrepreneurial initiatives.

10. Child Rearing Practices:

The traditional child rearing practices may inhibit the development of an independent spirit. If parents
insist on traditional, authoritative way of bring up children, they are discourage from taking initiatives,
exploring their surroundings and asking questions.