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    The Business Cycle

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    Louise Cruz
    The business cycle refers to the recurring periods of expansion and contraction in economic activity over time. It consists of four phases: expansion, peak, contraction, and trough. During expansion, economic indicators like output, employment, and prices increase. At the peak, expansion slows before a recession begins, where indicators decline. A contraction sees a rapid downturn. After hitting bottom at the trough, recovery follows as the economy grows again. The cycle then repeats, demonstrating the fluctuating levels of economic prosperity over the long run.

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    The Business Cycle

    Uploaded by

    Louise Cruz
    53 views4 pages
    The business cycle refers to the recurring periods of expansion and contraction in economic activity over time. It consists of four phases: expansion, peak, contraction, and trough. During expansion, economic indicators like output, employment, and prices increase. At the peak, expansion slows before a recession begins, where indicators decline. A contraction sees a rapid downturn. After hitting bottom at the trough, recovery follows as the economy grows again. The cycle then repeats, demonstrating the fluctuating levels of economic prosperity over the long run.

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    The business cycle

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    The business cycle refers to the recurring periods of expansion and contraction in economic activity over time. It consists of four phases: expansion, peak, contraction, and trough. During expansion, economic indicators like output, employment, and prices increase. At the peak, expansion slows before a recession begins, where indicators decline. A contraction sees a rapid downturn. After hitting bottom at the trough, recovery follows as the economy grows again. The cycle then repeats, demonstrating the fluctuating levels of economic prosperity over the long run.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    53 views4 pages

    The Business Cycle

    Uploaded by

    Louise Cruz
    The business cycle refers to the recurring periods of expansion and contraction in economic activity over time. It consists of four phases: expansion, peak, contraction, and trough. During expansion, economic indicators like output, employment, and prices increase. At the peak, expansion slows before a recession begins, where indicators decline. A contraction sees a rapid downturn. After hitting bottom at the trough, recovery follows as the economy grows again. The cycle then repeats, demonstrating the fluctuating levels of economic prosperity over the long run.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    The business cycle

    What is a business cycle?

     " A business cycle refers to periods of expansion and contraction. A peak is the high
    point following a period of economic expansion. A trough is the low point following a
    period of economic decline.
     The recurring and fluctuating levels of economic activity that an economy experiences
    over a long period of time.
    According to Arthur F. Burns and Wesley C. Mitchell..
    • Business cycles are a type of fluctuation found in the aggregate economic activity of nations
    that organize their work mainly in business enterprises.
    A cycle consists of:

     Expansions.
     General recessions.
     Contractions
    And revivals which merge into the expansion phase of the next cycle.
    According to Joseph Business
    Cycle has 4 steps.....
    • Expansion: Increase in production and prices, low interests rates.
    • Crisis: Stock exchanges crash and multiple bankruptcies of firms occur.
    • Recession: Drops in prices and in output high interests rates.
    • Recovery/Revival: Stocks recover because of the fall in prices and incomes.

    Boom
    • The business outlook is extremely optimistic.
    • The important features of prosperity are:
    • a high level of output ,trade, employment and income,
    • a high level of effective demand and high marginal efficiency of capital,
    • a large expansion of bank credit, and
    • a rising trend in prices, profits and interest rates.
    Peak

     A peak is the highest point of a business cycle and is followed by a contraction and
    eventual trough. Peaks are called after the fact once economic indicators have
    confirmed that contraction has set in and isn't simply noise.
    Characterized by

     Slackening in expansion rate


     Highest level of prosperity
     Downward slide in economic activities
     The phase of recession begins
    Recession
    • During recessions, many macro economic indicators vary in a similar way.
    • Production, as measured by gross domestic product (GDP), employment, investment
    spending, capacity utilisation, household incomes, business profits, and inflation all fall
    • while bankruptcies and the unemployment rate rise.

     Downward slide in growth rate becomes rapid and steady


     Output, employment, prices etc. register a rapid decline
     When the growth rate goes below the steady growth rate depression sets in
    Depression
    • The phase of depression economic activity is at its low. Wages, cost, price are very low.
    • There is massive unemployment leading to a fall in the aggregate income of the people.
    • This brings down the purchasing power of the community.
    • General demand falls faster than production.
    • The piled-up stock are sold at very high rates of discount leading to heavy loss to the
    firms.
    Depression begins when

     Growth is less than zero


     Total output, employment, prices, b ank advances etc. Decline during subsequent period
     Depression lasts as long as growth rate stays below the stagnated growth rate
    Through

     Phase during which the downward trend in the economy slows down and eventually
    stops
     Economic activities once again register an upward movement
     Period of severe strain on the economy
     Economy registers a continuous and rapid upward trend in output, employment, etc.
     It enters the phase of recovery
    Recovery
    • The rising price of an asset
    • Increased economic activity during a business cycle, resulting in growth in the gross domestic
    product.
    • Collection of all or a portion of a debt previously considered uncollectible.
    • Valuable materials remaining after processing.
    • Proceeds from the sale of an asset that represent depreciation that has already been taken.
    Expansion
    Increase in;

     Output
     Employment
     Investment
     Aggregate demand
     Bank credits
     Wholesale & Retail prices
     Per capita output
     Standard of living
    Recovery and expansion

     In the recovery phase the growth rate may still remain below the steady growth rate.
     When it exceeds this rate, the economy enters the phase of expansion And prosperity

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