The term business cycle is referred to the recurrent ups and downs in the level of economic activity that extend over a period of time. The business fluctuations occur in aggregate variable such as national income, employment and price level. The variables nearly move at the same time and in the same direction. However they vary in duration and intensity. The upturns and downturns in the level of economic activity are generally divided into four phases and these are called the phases of the business cycle. There are four phases of business cycle which are generally labelled as Peak, Recession, Trough and Recovery.
The top business cycle is called peak or boom. In the boom period the overall business activity is rising at a more rapid rate. There is a rise in real output and incomes of the people. There is a rise in production, price, employment, wages, interest rates, profits and in the volume of bank credit. The general mood of the businessmen is that of optimism and commercial. The industrial activity both speculative and non speculative shows remarkable expansion. Construction activity gets a big boost. Share markets give handsome gains to the investors. Financial institutions tend to expand credit.
The business cycle has too main stages; the recession phase and the expansion phase. The expansion stage is a period of fairly fast economic growth and the recession period is a stage of a relative decline in economic growth.
A business cycle consists of four unique components, each reflecting differing levels of economic activity and the subsequent circumstances occurring during each respective stage. An expansion is where the economy is experiencing positive and increasing economic output. Employment tends to increase (unemployment falls) and there is upward pressure placed on prices (inflation rises) as output rises. A peak is reached when the economy has produced the greatest amount of output. At this point employment is generally at or near its highest level (unemployment is at its lowest level: Usually below the full employment rate of approximately 5%) and prices tend to rise more rapidly (inflation accelerates). Following the peak is a recession, or contraction. During this phase output actually decreases (the rate of growth becomes negative); unemployment begins to rise and the inflationary pressure on prices fades In America, due to government involvement, prices usually don’t fall, but the rate of inflation decreases). The low point of the cycle occurs next. This is known as a trough and unemployment tends to be at its peak and production at it low point. There is very little upward pressure on prices and in some cases there is downward pressure on prices (deflation). The business cycle is identified and marked by the National Bureau of Economic Research (NEBR), an independent economic “think tank”.
Business Cycle refers to fluctuations in economic activity. It is also known as the economic cycle. The Business Cycle has four distinct phases that revolve around its long-tern growth trend.
- Contraction : That features slow down in economic activity.
- Trough : Turning point of business cycle where contraction shifts to expansion.
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A business cycle is a swing in total national output, income, and employment, usually lasting for a period of 20 to 10 years, marked by widespread expansion or contraction in most sectors of the economy. Typically economists divide business cycle into two main phases, recession and expansion. Peaks and troughs mark the turning points of the cycles. The downturn of a business cycle is called a recession, which is often defined as a period of in which real gross domestic product declines for at least two consecutive quarters. The recession begins at a peak and ends at a trough. According to the organization, which dates the beginning and end of business cycles, the National Bureau of Economic Research, the last U.S recession began after the economy peaked in the summer of 1990. This was followed by a brief recession, which ended in March 1991, after which United States enjoyed one of the longest expansions in its history. Note that the pattern of cycles is irregular. No two business cycles are quite the same. No exact formula, such as might apply to the revolutions of the planets or of a pendulum, can be used to predict the duration and timing of business cycles.
A business cycle is also known as economic cycle and it shows the fluctuations in the economic activities of a business. There are four phases of a typical business cycle which include Peak, Recession, Trough and Recovery. There are different characteristics of each phase. When the growth of a business starts, it leads to the peak which is the phase where the activity of the business is at the highest level. After this phase, business is more prone to go under recession because peak is the maturity phase in the business cycle and if a business is unable to introduce innovations then recession comes. In the trough phase again the position of the business continues and a decline stage comes and if the business is not able to develop and survive then fourth phase or Recovery phase comes.
A business cycle is a swing in total national output, income, and employment, usually lasting for a period of 20 to 10 years, marked by widespread expansion or contraction in most sectors of the economy. Typically economists divide business cycle into two main phases, recession and expansion. Peaks and troughs mark the turning points of the cycles. The downturn of a business cycle is called a recession, which is often defined as a period of in which real gross domestic product declines for at least two consecutive quarters. The recession begins at a peak and ends at a trough. According to the organization, which dates the beginning and end of business cycles, the National Bureau of Economic Research, the last U.S recession began after the economy peaked in the summer of 1990. This was followed by a brief recession, which ended in March 1991, after which United States enjoyed one of the longest expansions in its history. Note that the pattern of cycles is irregular. No two business cycles are quite the same. No exact formula, such as might apply to the revolutions of the planets or of a pendulum, can be used to predict the duration and timing of business cycles.
