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