Four Phases Of Business Cycle

The term "business cycle" (or economic cycle or boom-bust cycle) refers to economy-wide fluctuations in production, trade, and general economic activity. From a conceptual perspective, the business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around a long-term growth trend.

Stages

Each business cycle has four phases. They are expansion, peak, contraction and trough. They don’t occur at regular intervals. But they do have recognizable indicators.

Expansion is between the trough and the peak.

That 's when the economy is growing. Gross domestic product, which measures economic output, is

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Business Cycle Fluctuations

Business cycle fluctuations occur around a long-term growth trend and are usually measured by considering the growth rate of real gross domestic product.

In the United States, it is generally accepted that the National Bureau of Economic Research (NBER) is the final arbiter of the dates of the peaks and troughs of the business cycle. An expansion is the period from a trough to a peak, and a recession as the period from a peak to a trough. The NBER identifies a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production. " This is significantly different from the commonly cited definition of a recession being signaled by two consecutive quarters of decline in

Factors effecting business cycle

Employment

At times of high unemployment, factories are underutilized, output is lowered and the economy can suffer to the point of recession. Conversely, low unemployment can result in higher productivity and an improved economy. Employment is just one variable, and its effect should be considered in conjunction with others. Roger Leroy Miller, author of “Economics Today,” reminds us that technological innovation can displace workers and increase unemployment, but it can also result in an increase in output.

Inflation

Inflation occurs when the average prices of goods and services rise. The purchasing power of consumers is weakened as wages and salaries fall in relation to the cost of goods; people spend less and the economy suffers. Each country has its own level of inflation that in turn determines global exchange rates and the cost of imports. Holders of cash typically suffer during times of inflation as their money depletes in value. Times of high inflation have a negative effect on the