Business Cycle

The business cycle refers to the natural rise and fall of economic activity over time, characterized by periods of expansion (growth) and contraction (recession). The business cycle is typically divided into four phases: expansion, peak, contraction, and trough. During expansion, economic indicators such as GDP, employment, and production rise. At the peak, the economy is at its highest point of activity. Contraction follows, where economic activity slows down, leading to a recession. The trough is the lowest point, after which the economy begins to recover, leading to a new expansion phase.

Example

During the expansion phase of the business cycle, businesses may increase production and hire more workers, while during a contraction, they might reduce output and cut jobs to adjust to lower demand.