Question

A nation's economy fluctuates instead of growing at a steady pace every year. These fluctuations are generally referred to as the business cycle. Describe the four different phases of the business cycle.

Answer 1

The term"business cycle" (or economic cycle or boom-bust cycle) refers to fluctuations in demand, trade, and general economic activity across the entire economy. From a conceptual perspective , the business cycle is the upward and downward movement of GDP (gross domestic product) levels and refers to the duration of expansions and contractions in the level of economic activity (market fluctuations) around a long-term trend in growth.

The expansion is characterized by higher wages , higher economic growth and price pressure. A peak is the highest point of the economic cycle when the economy performs at maximum acceptable production, workers are at or above full employment, and inflationary price pressures are apparent. After a high, the economy usually undergoes a correction marked by a recession in which growth slows, job losses (increases in unemployment), and price rises subside. The slowdown ends at the trough, and the economy has reached a bottom at this stage, from which the next period of expansion and contraction will emerge.

Each business cycle has four phases. They are expansion, peak, contraction, and trough

An expansion is between the trough and the peak.. This is when the economy is on the rise. The gross domestic product is through which measures economic production. The rate of GDP growth is within a reasonable range of 2 to 3 percent. Unemployment increases from 3.5 to 4.5 per cent in its normal phase. Inflation is close to its goal of 2 per cent. In a bull market the stock market is. A well-managed economy can remain in the expansion phase for years.

The peak is the second phase. Its when the expansion transitions into the contraction phase.

The third step is a contraction. It begins at peak and finishes at trough. Economic growth weakens. Growth in GDP dropped below 2%. That is what economists call a recession, when it turns negative. Mass layoffs are now headline news. The jobless rate is starting to rise. It does not happen before the end of the process of contraction, since it is an indication of lagging. Companies are reluctant to recruit new staff until they are confident the crisis will be over. Stocks enter a bear market as investors sell.

The trough is step four. That is the month the economy is going from the phase of contraction to the phase of expansion. It's when the economy is going hard.