Business cycle

The business cycle, also known as the economic cycle or trade cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms) and periods of relative stagnation or decline (contractions or recessions).

Business cycles are usually measured by considering the growth rate of realgross domestic product. Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity. The common or popular usage boom-and-bust cycle refers to fluctuations in which the expansion is rapid and the contraction severe.

Economist Joseph Schumpeter identified economic cycles has four stages:

  1. Expansion (increase in production and prices, low interest-rates)
  2. Crisis (stock exchanges crash and multiple bankruptcies of firms occur)
  3. Recession (drops in prices and in output, high interest-rates)
  4. Recovery (stocks recover because of the fall in prices and incomes)