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What Are the Phases of the Business Cycle?

source : thoughtco.com

What Are the Phases of the Business Cycle?

Parkin and Bade’s text Economics gives the following definition of the business cycle: 

The
business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.

To put it simply, the business cycle is defined as the real fluctuations in economic activity and gross domestic product (GDP) over a period of time. The fact that the economy experiences these ups-and-downs in activity should be no surprise. In fact, all modern industrial economies like that of the United States endure considerable swings in economic activity over time.

The ups may be marked by indicators like high growth and low unemployment while the downs are generally defined by low or stagnant growth and high unemployment. Given its relationship to the phases of the business cycle, unemployment is but one of the various economic indicators used to measure economic activity. A lot of information can be gleaned from the various economic indicators and their relationship to the business cycle.

Parkin and Bade go on to explain that despite the name, the business cycle is not a regular, predictable, or repeating the cycle. Though its phases can be defined, its timing is random and, to a large degree, unpredictable.

The Phases of the Business Cycle

While no two business cycles are exactly the same, they can be identified as a sequence of four phases that were classified and studied in their most modern sense by American economists Arthur Burns and Wesley Mitchell in their text “Measuring Business Cycles.” The four primary phases of the business cycle include:

Expansion: A speedup in the pace of economic activity defined by high growth, low unemployment, and increasing prices. The period marked from trough to peak.
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. It is the period from peak to trough.
Trough: The lowest turning point of a business cycle in which a contraction turns into an expansion. This turning point is also called Recovery. 

These four phases also make up what is known as the “boom-and-bust” cycles, which are characterized as business cycles in which the periods of expansion are swift and the subsequent contraction is steep and severe.

But What About Recessions?

A recession occurs if a contraction is severe enough. The National Bureau of Economic Research (NBER) identifies a recession as a contraction or significant decline in economic activity “lasting more than a few months, normally visible in real GDP, real income, employment, industrial production.”

Along the same vein, a deep trough is called a slump or a depression. The difference between a recession and a depression is critical, though it is not always well-understood by non-economists.

A Review of Past Recessions

A Review of Past Recessions – In many cases, the most important single factor is a period of expansionary monetary policy in the years prior to the recession, sometimes to help fund government war spending or in an attempt to…The economic impact of the 2020 coronavirus pandemic in India has been largely disruptive. India's growth in the fourth quarter of the fiscal year 2020 went down to 3.1% according to the Ministry of Statistics.The Chief Economic Adviser to the Government of India said that this drop is mainly due to the coronavirus pandemic effect on the Indian economy.A recession is a tipping point in the business cycle when ongoing economic growth peaks, reverses, and becomes ongoing economic contraction. 12 Typical Causes of a Recession A decline in the gross domestic product growth is often listed as a cause of a recession, but it's more of a warning signal that a recession is already underway.

Economic impact of the COVID-19 pandemic in India – Wikipedia – America's history of recessions shows that economic contractions are inevitable, albeit painful, parts of the business cycle. A contraction is caused by a loss in confidence that slows demand. An event, like a stock market correction or crash, triggers it. But the true cause precedes the well-publicized event.Which of the following circumstances usually comes before a period of economic contraction? price stability, and economic growth. The more money banks have to lend, the more businesses can expand. Which of the following circumstances usually accompanies a period of economic expansion? high inflation.Business Cycle Phases. Business cycles are identified as having four distinct phases: expansion, peak, contraction, and trough. An expansion is characterized by increasing employment, economic growth, and upward pressure on prices. A peak is the highest point of the business cycle, when the economy is producing at maximum allowable output, employment is at or above full employment, and

Economic impact of the COVID-19 pandemic in India - Wikipedia

Causes of an Economic Recession – The Balance – Stages of the Economy. Economic cycles are identified as having four distinct economic stages: expansion, peak, contraction, and trough. An expansion is characterized by increasing employment, economic growth, and upward pressure on prices. A peak is the highest point of the business cycle, when the economy is producing at maximum allowable output, employment is at or above full employmentCompare the economic hardships of the Great Depression with today's economical struggles. You will post a one-paragraph discussion . Social Studies. Economic trends in China's Gross Domestic Product over a 50-year period can best be described as a. a gradual but steady decline in economic activity. b.For example, did you know that a bull market for stocks typically peaks and can begin declining before the economy peaks? In different words, a new bear market for stocks can begin even as the economy continues to grow, although at a very slow pace. In fact, by the time the Federal Reserve officially announces a recession has begun, it could be a good time to get more aggressive and start

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