The business cycle represents the short-term changes experienced in the economy due to changes in levels of economic activity.
Summarize the 4 different phases of the business cycle.
Offer real-life events that you’ve experienced or researched, as examples for 1 to 2 phases of your choice.
Share the impact that you, your company, or others around you experienced.
Based on that impact, what corrective action(s) should be taken?
The four different phases of the business cycle are expansion, peak, contraction, and trough.
1. Expansion: This phase represents a period of increasing economic activity, characterized by rising GDP, employment, and consumer spending. During this phase, businesses experience growth and profitability. An example of an expansion phase is the period from 2010 to 2019 when the US economy recovered from the Great Recession. Businesses saw an increase in demand and were able to expand their operations. As a result, companies hired more employees and invested in new projects. The impact was positive, with improved job opportunities, higher wages, and increased productivity. To sustain this phase, policymakers should focus on implementing fiscal and monetary policies that encourage investment, innovation, and consumer spending.
2. Contractions: Also known as recessions, contractions represent a period of declining economic activity, characterized by falling GDP, increased unemployment, and reduced consumer spending. An example is the 2008 global financial crisis caused by the subprime mortgage bubble. During this contraction phase, businesses faced financial distress, with many companies going bankrupt or laying off workers to cut costs. The impact was severe, with high unemployment rates and decreased consumer confidence. To alleviate the impact of contractions, governments should implement expansionary fiscal policies such as tax cuts or increased government spending to stimulate economic activity and stabilize the labor market. Central banks can also intervene through monetary policies by lowering interest rates or implementing quantitative easing.
It is important to note that the business cycle is a natural occurrence in any economy, and some fluctuations are inevitable. However, proper planning, risk management, and government intervention can help mitigate the negative impacts and facilitate a quicker recovery from economic downturns.