Business cycle

Definition

The business cycle represents the natural rise and fall of economic growth that occurs over time. It consists of periods of expansion (growth) and contraction (decline) in an economy.

5 Must Know Facts For Your Next Test

1. The four phases of the business cycle are expansion, peak, contraction, and trough.
2. During the expansion phase, economic indicators such as GDP, employment, and income levels increase.
3. A peak marks the highest point of economic activity before a downturn begins.
4. A contraction (or recession) is characterized by declining economic performance across various indicators.
5. The trough is the lowest point of economic activity before recovery begins leading to another expansion.

Review Questions

• What are the four phases of the business cycle?
• How do economic indicators behave during an expansion phase?
• What happens to economic activity at a peak?

Related terms

Gross Domestic Product (GDP): The total value of goods and services produced within a country during a specific period.

Recession: A significant decline in economic activity spread across the economy lasting more than a few months.

Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power.