Business Cycle

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.

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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.

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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.

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Business Cycle

What Does Business Cycle Mean?

The recurring and fluctuating levels of economic activity that an economy experiences over a long period; the five business cycles are growth (expansion), peak, recession (contraction), trough, and recovery. At one time business cycles were thought to occur on a regular and predictable basis, but today they are thought of as being more irregular, varying in frequency, magnitude, and duration.

Investopedia explains Business Cycle

Since World War II, most business cycles have lasted three to five years from peak to peak. The average duration of an expansion has been 44.8 months; the average duration of a recession has been 11 months. The Great Depression, which saw economic activity decline from 1929 to 1933, lasted 43 months.

Related Terms:
• Asset Turnover
• Bear Market
• Bull Market
• Law of Supply
• Recession