The Economic Cycle: The Four Phases Of The Business Cycle

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The business cycle which is also known as the economic cycle is the fluctuation in economic activity that an economy experiences over a period of time. It can be defined as the downward and upward movement of gross domestic product (GDP) around its long-term growth trend. Each business cycle has four phases. They are expansion, peak, contraction and trough. Though the phases don’t occur at regular intervals, they have some recognizable indicators.
The business cycle The business cycle diagram.

Interpretations of the cycle
Expansion is between the trough and the peak. That 's when the economy is growing. Gross domestic product, which measures economic output, is increasing. The growth rate of GDP in the economy as a whole is in the healthy
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The peak is the second phase. It is the phase when the expansion changes into the contraction phase. Here the firm will be performing well and all transactions are coming out successful in favour of the firm.
The third phase is contraction. It starts at the peak and ends at the trough. Economic growth weakens. GDP growth falls and when it turns negative, the economists then call it recession. The unemployment rate begins to rise. It doesn’t happen until toward the end of the contraction phase because it 's a lagging indicator. Firms wait to hire new employees until they are sure the recession has come to an end. At this phase we also see that the organisations competition has rose and the resources and the customer base is spread throughout a number of competitors.
The trough is the fourth phase. That 's the period when the economy transitions from the contraction phase to the expansion phase. It 's when the economy hits bottom. Here the impact on the economy also reaches to the individual
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Let’s take for example, if the model educates us that, the firm will experience a rough recession, then the top level managers will scheme up plans and budgets that that ensure the business will survive during that period.
In addition, the business cycle helps the organisation by reducing its reluctance towards proper achievement of its objectives. This is because, the cycle tells the business of what it is to expect every now and then during its operations. With this, the managers are always on their toes trying to achieve maximum profit at any point, and by this, the effectiveness of the managers and how they always implement their goals is always accurate. By this the managers can always try to reach a constant Goldilocks.
The business cycle also helps the firm to gain a competitive advantage over its major rivals considering the assumption that these competitors do not use the cycle as a tool to make strategic decisions. If that is taken into consideration, then our firm will know what is likely to happen in the future giving them room to get prepared for when it happens. With this upper hand when the same problems attack our competitors, they won’t be prepared to resist a big impact and thus destroying its internal and external

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