The Business Cycle refers to the vast Economic fluctuations in trade, production, and general Economic activities. The Business Cycle is also known as the boom-bust Cycle or Economic Cycle. If we look at it conceptually then, the Business Cycle refers to the up and down movements of the GDP and refers to widespread expansions and contractions in the level of Economic booming and activities.
The Business Cycle graph is never constant. Depending on the Economic standout, the rise and fall of the curve occur. The features of the Business Cycle have different phases. Business Cycles are identified into four distinct phases: Expansion, Peak, Contraction, and Trough.
What are the Features and Phases of a Business Cycle?
As mentioned earlier, there are four different phases of the Business Cycle; all these phases have different features of the Business Cycle.
Expansion: Expansion is characterized by employment increase, Economic growth, and rise in prices.
Peak: Peak is considered to be the highest point in the Business Cycle. A Business Cycle is said to have reached a peak when there is maximum output, employment is full or near to full employment, and inflationary prices are somewhat evident.
Contraction: Once the peak is reached, the Economy usually enters into the contraction phase. In this phase, the growth slows down and unemployment increases.
Trough: The contraction then hits the trough point, and it is at this time that the Economy has its bottom. Once again, the Economy will hit bottom, and the next phase of expansion and contraction will start.
What are the Features of a Business Cycle?
There are several features of a Business Cycle. Let us take a look at five features of a Business Cycle.
-
Occurs Periodically: The different phases of a Business Cycle occur from time to time. Although, at certain times, these periods will vary according to the Economic conditions of the industry. This duration may last as long as 10-12 years. The intensity of the phases will also change depending on the Economy. For example, at times, the firm will see massive growth followed by a short span of depression.
-
Synchronous: Another advantageous and prominent feature of the Business Cycle is that it is synchronic. The features of a Business Cycle are not restricted to a single firm or industry. They originate in a free Economy and are prevalent. If there is any kind of disturbance or Business boom in one industry, it will affect the other firms too. Since different kinds of industries are interrelated, the Business in one firm disturbs that in another firm.
-
Major Sectors are Affected: It’s been noticed that fluctuations occur not only at the level of production but also in other variables such as employment, consumption, investment, rate of interest, and price level. The investment and consumption of durable consumer goods like houses and cars are continually affected by the periodical fluctuations. As the process of consumption is deferred the courses of the Business Cycle are also affected widely.
-
Profit Variation: Another significant feature of the Business Cycle is that the profits fluctuate more than any other income source. This makes any kind of Business a tricky and uncertain profession for many. It is difficult to predict Economic conditions. In situations of depression, profits may even become harmful. That is why many Businesses go bankrupt.
-
Worldwide Impact: Business Cycles are international in nature. If depression occurs in one country, then it is bound to spread to other nations too. This happens mainly because the countries depend on each other for import and export trades. The 1930 depression in the USA and Great Britain shook the entire world and resulted in a recession.
Fun Facts About Business Cycles
-
Business Cycles are an aggregate phenomenon. They do not affect a single Economic activity but several Economic variables.
-
Expansions and recessions accompany Business Cycles.
-
Although Business Cycles are recurrent, they are not periodic. They often occur at regular intervals but not at a fixed duration. It is therefore tough to predict times of recession.
-
The expansion and contraction phases can have different durations. The amplitude of both phases doesn’t need to be the same or equal.
Business Cycle Characteristics
There is no such thing as a straight line in any Economy. They all go through Cycles of Economic expansion and decline. The Economic climate is extremely dynamic, and it has a considerable impact on Business enterprises. There are some traits that all of these Business Cycles have in common. So, let’s have a look at the characteristics of Business Cycles.
Cycle of Business
The Business Cycle is the natural expansion and contraction of goods and service production and output over a period of time. It can be defined as the rise and collapse of a Business in the Economy.
It is, above all, a tool for understanding the firm’s and the Economy’s Economic conditions. This analysis can be used by the company to make appropriate policy adjustments.
Business Cycle Phases include:
Business Cycles have various phases, which may be studied to learn more about their underlying causes. These phases have been referred to by various economists under various titles.
The Following Business Cycle Phases Have Been Identified In General:
1. Expansion is number one (Boom, Upswing or Prosperity)
2. The pinnacle (upper turning point)
3. Reduction in size (Downswing, Recession or Depression)
4. Lower turning point
In Fig. 13.1, the four phases of Business Cycles are depicted, beginning with the trough or depression, when Economic activity, i.e., production and employment, is at its lowest point.
()
The Economy enters the growth phase with the revival of Economic activity, but owing to the reasons stated below, the expansion cannot last indefinitely, and after reaching its peak, contraction or downswing begins. We have depression when the contraction picks up speed.
Business Cycle Characteristics
Expansion, peak, depression, and recovery are the four stages of a Business Cycle. While each phase has its own distinct traits, there are some aspects that are shared by all stages. Take a look at these characteristics of Business Cycles.
Business Cycle Features:
1. Business Cycles occur on a regular basis. They feature identifiable phases such as expansion, peak, contraction, depression, and trough, albeit they do not show the same regularity. In addition, Cycle duration varies greatly, from a minimum of two years to a maximum of 10 to twelve years.
2. Business Cycles are also synchronised. That is, they have an all-encompassing nature and do not affect just one industry or area. Depression or contraction, for example, might occur in any industry or sector of the Economy at the same time.
3. Finally, changes have been found not only in the level of output but also in other variables such as employment, investment, consumption, interest rate, and price level.