Question

What is the business cycle ? Why is business cycle important to the macroeconomic economy?

Answer 1

The business cycle is the cycle or series of cycles of Economic Expansion and contraction.

• It is the natural rise and fall of Economic growth.
• It can help us to make better financial decisions.
• Business cycle has four phases:-

They are Expansion:-

• Expansions is between the trough and the peak that is when the Economy is growing.
• Measures Economic out put.

Peak:-

• Is the second phase.
• It is the month when the Expansion transitions in to the contraction phase.

Contraction is the third phase

• It starts at the peak and ends at the trough.
• Economic growth weakens.
• GDP growth falls below 2 percent.
• The Unemployment rate begins to rise.

Trough is the fourth phase

• When the Economy transitions from the contraction phase to the Expansion phase.

Business cycle's four phases are also called the boom and bust cycle..

Macro business cycle play an important role in management decisions.

When the Economy is in a cycle of Retraction,

Management will act conservatively.

Where as in cycle of Expansion,

Management tends to act more aggressively to gain market share.