Business Cycle: Cycle of Short-Term Ups and Downs in the Economy

Only available on StudyMode
  • Download(s) : 405
  • Published : December 10, 2012
Open Document
Text Preview
Business Cycle: The business cycle is the cycle of short-term ups and downs in the economy. The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time are called business cycle. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular. Economic growth is not a steady phenomenon; rather, it tends to exhibit a pattern as follows: 1.Contraction

2.Recession
3.Expansion
4.Boom
1. Contraction: A phase of the business cycle in which the economy as a whole is in decline. More specifically, contraction occurs after the business cycle peaks. For most people, a contraction in the economy can be source of economic hardship; as the economy plunges into a contraction, people start losing their jobs. While no economic contraction lasts forever, it is very difficult to assess just how long a downtrend will continue before it reverses because history has shown that a contraction can last for many years (such as during the Great Depression). The longest economic contraction in the NBER database was the 65 month contraction from October 1873 until March 1879. By comparison, the contraction that began in 1929 and that initiated the Great Depression lasted 43 months from August 1929 until March 1933. 2. Recession: A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP); although the National Bureau of Economic Research (NBER) does not necessarily need to see this occur to call a recession.

Recession is a normal part of the business cycle; however, one-time crisis events can often trigger the onset of a recession. The global recession of 2008-2009 brought a great...
tracking img