Business Cycle
Candlefocus EditorAt the peak of the business cycle, an expansion in economic activity would end and a recession would start. And when the trough of the business cycle is hit, a recovery begins and this marks the beginning of a new expansion. This cyclical pattern of economic activity can be deeply disruptive to business owners, employees and consumers.
The severity of a recession is usually judged by the three D’s: depth, diffusion, and duration. It is a measure of how pronounced, pervasive, and persistent the recession is. On the other hand, the strength of an expansion is also judged using the same criteria.
The business cycle is a long-term pattern of economic activity that typically lasts for several years. It is divided into four stages: expansion, peak, contraction (also called recession) and trough.
Expansion refers to the growth in the production of goods and services and the increase in job opportunities. The period of increased economic activity prior to a peak is referred to as a peak. This is when employment and output reach the highest levels. The period when output and employment decline is called a contraction (or recession).
The trough is the period when the recession ends and an expansion begins, during which output and employment start to rise again.
The causes of business cycles remain somewhat mysterious, but various macroeconomic, technological, and other factors are believed to have an effect. For example, a drop in the money supply, changes in macroeconomic policies, a surge in demand for a particular type of product, or developments in technology can all have a significant impact on the course of the business cycle.
Business cycles are an important part of economic activity that enable economies to adjust to changing parameters, including demographics and regional preferences. Therefore, understanding the impacts and causes of business cycles, and being able to anticipate them to some degree, can be beneficial to businesses, households, and the economy as a whole.