Business
Business cycle
The business cycle or economic cycle refers to the fluctuations of economic activity about its long term growth trend. The cycle involves shifts over time between periods of relatively rapid growth of output (recovery and prosperity), and periods of relative stagnation or decline (contraction or recession). These fluctuations are often measured using the real gross domestic product. Despite being named cycles, these fluctuations in economic growth and decline do not follow a purely mechanical or predictable periodic pattern.
A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degress, unpredictable. A business cycle is identified as a sequence of four phases:Contraction (A slowdown in the pace of economic activity)Trough (The lower turning point of a business cycle, where a contraction turns into an expansion).Many economists believe that the business cycle has become less pronounced, exhibiting briefer and shallower economic contractions. While there is economic data to support a diminished business cycle, other economists argue that the data prior to 1929 was not very accurate and tended to overstate the magnitude of the economic swings.
Business cycles are dated according to when the direction of economic activity changes. The peak of the cycle refers to the last month before several key economic indicators, such as employment, output, and new housing starts, begin to fall. The trough of the cycle refers to the last month before the same economic indicators begin to rise. Because key economic indicators often change direction at slightly different times, the dating of peaks and troughs necessarily involves a certain amount of subjective judgment.Every company will experience each business cycle a number of times during its years of operation. Experienced business owners recognize that each cycle is a temporary state, and that careful planning and judicious use of resources can allow a business to weather rough days so that periods of prosperity will eventually be achieved once again.
