business cycle

(redirected from Business Climate)
Also found in: Dictionary, Thesaurus, Wikipedia.

Business cycle

Repetitive cycles of economic expansion and contractions. The official peaks and troughs of the US cycle are determined by the National Bureau of Economic Research in Cambridge, MA.

Business Cycle

The continuous expansion and contraction of economic growth in fairly regular intervals. That is, a business cycle involves GDP growth and the creation of wealth for a period of time, followed by overheating and a recession. When the recession reaches its bottom the business cycle starts again. Some economists believe that the length and strength of business cycles are easily predictable, while others dispute this. A business cycle is seen as an inevitable part of the capitalist system. It is informally called a boom-and-bust cycle. See also: Industry Life Cycle, Kondratiev Wave.

business cycle

The somewhat irregular but recurring periods of change in economic activity over time. A business cycle is generally divided into four stages: expansion, prosperity, contraction, and recession. The stage in which an economy operates has a significant impact on a firm's profitability and prospects. This impact is especially severe with respect to firms that experience large swings in sales and profits. Many analysts believe stock prices tend to lead the business cycle. Therefore, it is felt that bull markets begin before a period of expansion and that bear markets begin before a period of contraction.

business cycle

fluctuations in the level of business activity in an economy brought about by changes in demand conditions, particularly increases and decreases in investment spending. The business cycle is characterized by four phases, with the economy moving upwards from ‘depression’ through ‘recovery’ to ‘boom’ and back through ‘recession’ to depression once again. The depression stage of the cycle is characterized by a very low level of demand relative to supply capacity, accompanied by low levels of output, unsold stock and high unemployment. As demand picks up in the recovery stage, stock levels fall and output and employment increases. Boom conditions are characterized by full-capacity levels of output and employment, but with a tendency for the economy to ‘overheat’, producing inflationary pressures. The ending of a boom is followed by a period of recession, with falling demand leading to modest falls in output and employment at first but then accelerating into depression as demand continues to fall. In practice, however, governments attempt to use anticyclical FISCAL POLICY and MONETARY POLICY to stabilize the economy, aiming in general to keep total demand in balance with the supply capabilities of the economy thus avoiding undesirable output- and employment-losses as well as containing inflation. See ECONOMIC POLICY.
Business cycleclick for a larger image
Fig. 20 Business cycle. Fluctuations in the level of economic activity.

business cycle


trade cycle

fluctuations in the level of economic activity (ACTUAL GROSS NATIONAL PRODUCT), alternating between periods of depression and boom conditions.

The business cycle is characterized by four phases (see Fig. 20 ):

  1. DEPRESSION, a period of rapidly falling AGGREGATE DEMAND accompanied by very low levels of output and heavy UNEMPLOYMENT, which eventually reaches the bottom of the trough;
  2. RECOVERY, an upturn in aggregate demand accompanied by rising output and a reduction in unemployment;
  3. BOOM, aggregate demand reaches and then exceeds sustainable output levels (POTENTIAL GROSS NATIONAL PRODUCT) as the peak of the cycle is reached. Full employment is reached and the emergence of excess demand causes the general price level to increase (see INFLATION);
  4. RECESSION, the boom comes to an end and is followed by recession. Aggregate demand falls, bringing with it, initially modest falls in output and employment but then, as demand continues to contract, the onset of depression.

What causes the economy to fluctuate in this way? One prominent factor is the volatility of FIXED INVESTMENT and INVENTORY INVESTMENT expenditures (the investment cycle), which are themselves a function of businesses’ EXPECTATIONS about future demand. At the top of the cycle, income begins to level off and investment in new supply capacity finally ‘catches up’ with demand (see ACCELERATOR). This causes a reduction in INDUCED INVESTMENT and, via contracting MULTIPLIER effects, leads to a fall in national income, which reduces investment even further. At the bottom of the depression, investment may rise exogenously (because, for example, of the introduction of new technologies) or through the revival of REPLACEMENT INVESTMENT. In this case, the increase in investment spending will, via expansionary multiplier effects, lead to an increase in national income and a greater volume of induced investment. See also DEMAND MANAGEMENT, KONDRATIEF CYCLE, SECULAR STAGNATION.

References in periodicals archive ?
Bulgariaas business climate indicator dropped by 2.
The business climate in construction continued to improve.
The one year mission of the World Bank will be establishing operational tools for evaluation and monitoring, organizing seminars on exchange with the various players and the coaching of members of the Committee and the Ministry in support of the process of business climate improvement in Algeria.
Nevertheless, the current business climate remains positive, on account of expansive fiscal and monetary policy and the on-going construction boom in the country.
This was foundation stone for the launch of the Social Business Climate Innovation Fund.
3% of Taiwan's manufacturers polled in its survey felt that business climate turned positive in August, with 36.
The business climate in retail trade indicator remains approximately at the level from the previous month.
Results of the fourth Small Business Barometer study, released today, found higher positive perceptions of the state's business climate than did any of the three previous studies conducted during 1993.
In May 2014, the total business climate indicator increases by 4.
The American Electronics Association, which represents 1,600 high-tech firms in California, issued its annual report on the state's business climate in Sacramento last week.
Block said NAWGA and IFDA have concerns about President-elect Clinton's advocation of certain policies that could be damaging to the business climate, including mandatory employer-provided health care, higher taxes and a strengthened role for government regulators.

Full browser ?