Definition of 'Business Cycle

The recurring and fluctuating levels of economic activity

that an economy experiences over a long period of time.
The four stages of the business cycle Boom Recession Bust
and Recovery. At one time, business cycles were thought
to be extremely regular, with predictable durations, but
today they are widely believed to be irregular, varying in
frequency, magnitude and duration.
The Business Cycle, also called the Economic or Trade
Cycle, has been studied by economists for over 100 years..
We all know of its effects. Sometimes the economy is
booming are other times when economy is in recession.
During times of boom unemployment is relatively low,
wages are rising and inflation is also likely to be rising.
During times of recession unemployment is relatively high,
wages may be stagnant and inflation is likely to be low.
The Four Phases of the Business Cycle
Boom
This phase is marked by low unemployment or even full
employment in certain sectors of the economy, increasing
interest rates, increasing inflation, high consumer demand,
a balance of payments deficit and often a budget surplus
for the government caused by high tax revenues and lower
expenditure on Social Security.
Recession
During this phase we see increasing unemployment, falling
demand from consumers, falling investment by firms and a
decline in the levels of inflation and interest rates.
Technically a recession happens when gross domestic
product falls for two consecutive quarters.
Bust
The third phase is bust, the bottom of the business cycle.
In this stage unemployment is relatively high, inflation is
low, demand from consumers is low especially in regard
to consumer durables (cars, fridges, washing machines
etc.) and luxuries such as foreign holidays , there is very
little investment by firms.
Recovery
The final phase is recovery, during this phase investment
increases unemployment falls and consumers start to
spend again. Doing the first part of recovery there is little
inflation or pressure for increased wages but as we
progress through recovery there will be inflation when
there are shortages of labour, housing, capital etc,
Characteristics of a Trade Cycle
study of trade cycles has revealed two important characteristics: (1)
Its cyclical nature, i.e., periodicity,
(2) its general nature or synchronism.
In this first place, it has been found that trade cycles occur
periodically at fairly regular intervals.
The interval is not a precise one but the degree of regularity is
sufficient to demonstrate the periodicity of a trade cycle. There is a
general consensus of opinion that the cycle takes seven to ten years
nearly to complete itself.
The second characteristic is synchronism. The business world is one
a economic unit, like a living organism. An attack on one part of the
business organism is bound to send shock to the other parts. If one
firm is in grief ,those who deal with it cannot remain unaffected,
and they in turn, will affect others with whom they may be in the
commercial intercourse. Thus depression passes From one industry
to another. A time comes when all industries in all districts and all
firms in the country are engulfed . Few can escaped deluge.
1.Synchronic
2.Wave like movement
3.Recurring nature
4.Cumulative
5.Pervasier
6.Presence of crisis