What Is The Business Cycle And What Are The Phases Of The Business Cycle?

Business Cycle refers to fluctuations in economic activity. It is also known as the economic cycle. The Business Cycle has four distinct phases that revolve around its long-tern growth trend.


- Contraction : That features slow down in economic activity.

- Trough : Turning point of business cycle where contraction shifts to expansion.

- Expansion: Growth in economic activity.

- Peak : Upper turning point of business cycle.

There are four phases of the business cycle:

1. Peak/boom
2. Recession
3. Trough
4. Recovery

Let's briefly discuss each phase now:

1. Peak/Boom: This is the stage when the business activity is at its maximum, although this level of activity is temporary.
2. Recession: After operating at maximum activity, the business goes into the recession phase. This phase witnesses a decrease in total output, employment and trade. Recession may last for about 6 months or more.
3. Trough: At this stage, output and employment are at their lowest. This is also referred to as the stage of depression. This stage may be short term or may be long term depending on circumstances and market conditions.
4. Recovery: The recovery stage, as the name suggests is the rise in output, employment and trade after the depression stage. The employment levels increase till maximum employment is reached.

These stages are often depicted as a graph. The graph would look like a wave. The peak of the wave is the boom phase, the decreasing slope is recession, the rock bottom of the wave is the trough/depression, and recovery phase is shown as the increasing slope after the trough. The vertical axis measures real output and the horizontal axis measures time.

Phases of business cycle

Means fl activations means up and low trend's business

          The term business cycle is referred to the recurrent ups and downs in the level of economic activity that extend over a period of time. The business fluctuations occur in aggregate variable such as national income, employment and price level. The variables nearly move at the same time and in the same direction. However they vary in duration and intensity. The upturns and downturns in the level of economic activity are generally divided into four phases and these are called the phases of the business cycle. There are four phases of business cycle which are generally labelled as Peak, Recession, Trough and Recovery.

          The top business cycle is called peak or boom. In the boom period the overall business activity is rising at a more rapid rate. There is a rise in real output and incomes of the people. There is a rise in production, price, employment, wages, interest rates, profits and in the volume of bank credit.  The general mood of the businessmen is that of optimism and commercial. The industrial activity both speculative and non speculative shows remarkable expansion.  Construction activity gets a big boost. Share markets give handsome gains to the investors. Financial institutions tend to expand credit.

Business cycle measures the rate of fluctuation and other macro economical factors in the movement of business activity. The graph have ups and down in the periodic.

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