I am studying for a business test. We are supposed to learn the business/economic cycle, but it is not printed in my book. I know three of the steps are prosperity, recession and depression, but I know I am missing at least one or two. What are they? Thank you!
The business cycle, also known as the economic cycle, refers to the fluctuations in economic activity that occur over time. It consists of four main phases: expansion, peak, contraction, and trough.
The phases of the business cycle are as follows:
1. Expansion: This is the phase where the economy is growing, and various economic indicators such as GDP (Gross Domestic Product), employment, and consumer spending are increasing. During this phase, businesses are thriving, investments are made, and overall economic activity is on the rise.
2. Peak: The peak marks the highest point of the business cycle. It represents the end of the expansion phase, where economic growth begins to slow down. At this stage, the economy reaches its maximum potential, and indicators start to peak before shifting into a contraction phase.
3. Contraction: This is the phase when economic activity starts to decline. The contraction phase is characterized by a decrease in GDP, rising unemployment rates, reduced consumer spending, and decreased investments. This phase typically leads to a recession.
4. Trough: The trough is the lowest point of the business cycle. It represents the bottom of the contraction phase before the economy starts to recover. During this stage, economic activity is at its lowest, with reduced levels of output, employment, and investment.
It's important to note that a depression is a severe and prolonged form of a recession, with a more significant decline in economic activity, lasting for an extended period.
To summarize, the four phases of the business cycle are expansion, peak, contraction, and trough. These phases demonstrate the natural fluctuations in economic activity over time.