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The Business Cycle

The Business Cycle

The business cycle is the medium-term fluctuation of the economy between periods of expansion and contraction.


Learning Objectives

  • Differentiate between the business cycle and economic fluctuations
  • Summarize the phases and turning points inherent in the business cycle


Key Points

  • The business cycle reflects economy-wide shifts and therefore is measured with close consideration of trends in Gross Domestic Product.
  • Business cycles consist of two phases and two turning points.
  • Although termed a cycle, the business cycle does not follow a predictable pattern.
  • More recently, economists describe this phenomenon as economic fluctuations, where the long-run expansionary trend of an economy experiences shocks to the system that create short-term departures.


Terms

  • fluctuation

    A motion like that of waves; a moving in this and that direction.

  • gross domestic product

    Gross Domestic Product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period.

  • business cycle

    (economics) A long-term fluctuation in economic activity between growth and recession

  • recession

    a period of reduced economic activity


Example

  • The boom in economic activity from about 2002 until 2008 is an example of the expansion characteristic of the upswing portion of the business cycle. Just before 2008, the business cycle peaked, and the economy began to contract.

Source: Boundless
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