What is a bussiness Cycle? What are its stages?

Definition: A business cycle is the periods of growth and decline in an economy.

A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degrees, unpredictable. A business cycle is identified as a sequence of four phases:

  • Contraction (A slowdown in the pace of economic activity)

  • Trough (The lower turning point of a business cycle, where a contraction turns into an expansion)

  • Expansion (A speedup in the pace of economic activity)

  • Peak (The upper turning of a business cycle)

A recession occurs if a contraction is severe enough... A deep trough is called a slump or a depression.

There are four stages in the business cycle:
  1. Contraction - When the economy starts slowing down.
  2. Trough - When the economy hits bottom, and generally stagnates at a low level.
  3. Expansion - When the economy starts growing again.
  4. Peak - When the economy is in a state of "irrational exuberance."

1 comment:

Asim said...

I am not a student of economics. But my knowledge spread somewhat really. Graphs help to realize the definitions and parts.