Glossary
Macroeconomics
Business Cycle
The business cycle describes fluctuations in economic activity over time, as periods of stronger growth are followed by periods of slower growth or contraction. Although the length and severity of each cycle varies, economists often describe the business cycle using four broad stages: expansion, peak, contraction and trough.
What are the stages of the business cycle?
- Expansion: economic output rises, employment generally increases and businesses tend to invest and produce more.
- Peak: economic activity reaches a high point before growth begins to weaken.
- Contraction: economic activity slows or declines. Business investment, spending and employment may weaken.
- Trough: activity reaches a low point before the economy begins to recover.
A renewed period of growth following a downturn is commonly described as a recovery.
Business cycles do not follow a fixed schedule, and different parts of the economy may move at different speeds. Economists therefore use a range of indicators, including GDP, employment, industrial production, consumer spending and business surveys, to judge where the economy may be in the cycle.