Business Cycle Defined
The term business cycle refers to the rise and fall in economic activity over what can be several months or even years. These patterns of contraction and expansion occur around a long term growth trend of increased real gross domestic product. It was after World War II that the modern theory of business cycles came to its current evolution. (Sachese, Small & Small, 2009) Economists Arthur F. Burns and Wesley C. Mitchell have characterized business cycles in what many economists now consider to be the standard definition: Business cycles are at type of fluctuation found in the aggregate activity of nations that organize their work mainly in business enterprise: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and rivals which merge into eh the expansion phase of the next cycle; in duration business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar characteristics with amplitudes approximating their own. (Burns, & Mitchell, 1946)
Despite being termed cycles most of the vacillation in economic movement does not follow a typical circular or predictable pattern. The difference in business cycles is due to the fact that the economic circumstances at any given time are affected by a complex array of variables. “Harvest conditions, domestic politics, changes in monetary and banking systems, international relations, the making of war or of peace, the discovery of new industrial methods or resources, and a thousand other matters all affect the prospects of profits favorably or adversely and therefore tend to quicken or slacken the pace of business.” (Mitchell, 1923 p.6) Rather than determining a specific model in which these cycles follow economists have found better success in focusing on the factors that cause these fluctuations. (Mitchell, 1923) Interconnectivity of Business...
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