The business cycle is caused by the forces of supply and demand—the movement of the gross domestic product GDP—the availability of capital, and expectations about the future. This cycle is generally separated into four distinct segments, expansion, peak, contraction, and trough.
What causes changes in business cycle?
Every nation’s economy fluctuates between periods of expansion and contraction. These changes are caused by levels of employment, productivity, and the total demand for and supply of the nation’s goods and services. In the short-run, these changes lead to periods of expansion and recession.
What are the four phases of the business cycle?
While the concept often is used in relation to the larger economy, its phases have applications to each particular business or industry. As generally defined, the business cycle has four components — contraction, recession, expansion and peak.
What is the definition of a business cycle?
A business cycle refers to the periodic expansion and contraction a company experiences. While the concept often is used in relation to the larger economy, its phases have applications to each particular business or industry.
What happens at the peak of the business cycle?
Peak: The upper turning point of a business cycle and the point at which expansion turns into contraction. Contraction: A slowdown in the pace of economic activity defined by low or stagnant growth, high unemployment, and declining prices.
When does the trough of the business cycle occur?
Trough: As the peak is the cycle’s high point, the trough is its low point. It occurs when the recession, or contraction phase, bottoms out and starts to rebound into an expansion phase — and the business cycle starts all over again. The rebound is not always quick, nor is it a straight line, along the way towards full economic recovery.
