The economic cycle: stages, causes, examples and particularities explained (2023)

Movement up or downPBIthe brute domesticproductsaround a long-term growth trend is calledeconomicallyCycle. It is also known as aEconomyor business cycle. This oscillation between growth and retraction is natural and is part of the expansion and retraction phase of the economic cycle.

Several factors, such as income fromPeople, economic factors, etc. they should be considered and help determine the stages of different individuals at different stages of the cycle.

A lot of capital is invested in the growth phase.They wereYTechnology, but in times of depression, investors invest in healthcare, utilities and finance.

table of contents

phases of the economic cycle

Generally, there are six phases in the business cycle. These phases succeed each other and are irrevocably linked and influenced. Here are the six steps:

#1. Extension:

The economic cycle: stages, causes, examples and particularities explained (1)

The expansion phase of the business cycle, as its name suggests, is the growth phase. In this phase, not only does the economy expand, but also the pace of production increases.

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As both affect each other directly, it is obvious that if one goes up, the other goes up. Since its expansion phase everywhere, it also keeps interest rates low and encourages people to invest. The growth rate should ideally be in the double digits, and thiszinc indexis a single digit.

#2. Cume:

The high phase of the economic cycle is characterized by a maximum of economic growth. The growth at the top is maximum and does not grow beyond another limit. Economic growth is on the rise and suggests it will not recover further.

Read also What is competitive equilibrium? meaning and examples

Prices have risen to the limit, and in some cases, people's purchasing power is also increasing. This is because people's income is also reaching its peak.

#3. Recession:

The economic cycle: stages, causes, examples and particularities explained (2)

The recession phase follows right after the bull phase. Things start to get worse at a slower but steady pace. Its steady decline in almost everything marks the recession phase. This phase is the exact opposite of the growth phase.

Investment is slowed down and so is the flow of capital into the countrymercado. Positive factors in the economy, including growth, slow down and the decline begins.

#4. To decrease:

The phase following the peak is the recession. The graph starts to go down and there is a drop in jobs and an increase in unemployment. Prices that rose during the peak period will continue to rise or remain stable, and in both cases people will not be able to afford to buy.

Even the essentials are only bought when needed and when money is available.

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#5. Depression:

The economic cycle: stages, causes, examples and particularities explained (3)

In the depression that follows the decline, the phase is when the growth rate drops further. The fall continues until the cycle ofdemandYdeliveryhe is very affected.

Expenditures exceed revenues at the national level. The graph eventually reaches stability, where growth is at its lowest point and is the lowest a graph can go. This phase is the exact opposite of the peak phase.

#6. Lazer:

As the name suggests, the recovery rates that follow are slow-growing. There is a reversal of the trend of the previous phase's graph and the economy's recovery is seen at a steady pace.

That's where the prices are lowest and couldn't go any lower.requirementsslowly recovering, which has a positive effect on supply.

Also read 4 Main Types of Economies - Different Types of Economies

It can also be seen that investment and unemployment are slowly recovering, which ultimately increases production. As employment resumes this is also having a positive impact on bankers and investment is slowly picking up.

The recovery takes a long time, depending on the recession that occurred, but once the recovery phase is complete, it slowly moves into the growth phase and the cycle continues.

Characteristics of the economic cycle.

Below are some of the similarities found in the business cycle:

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  1. The business cycle is one of the main factors that influence the sales of consumer goods such as washing machines, televisions, houses, etc. These goods are most affected by fluctuations in the economic cycle.
  2. The business cycle or economic cycle is one of the important factors that affect many variables including consumption, employment rate, price increase, interest rate and investment in many sectors.
  3. All phases of the economic cycle are considered to be synchronized with each other. That is, depression or expansion occurs simultaneously in almost all industries and their sectors in the economy.
  4. It is often seen that this recession or expansion forms a chain and is transmitted from one industry to another until it affects the entire economy. This is because most industries depend on other industries for raw materials to process the final product. This is observed both in the records of the depression phase and in the expansion phase.
  5. It's a common assumption that business cycles are often repeating and regular. The regularity can often vary, and thefrequencyof the business cycle may be different, but the unique phases of the business cycle, which are boom, peak, trough, etc., still occur. The variation in the routine of this economic cycle is from 2 years to 10 years.
  6. It is often seen that stocks suffer the most and immediately suffer from business cycle growth due to expansion. Upon receipt, all inventory management fails, leading to negative effects on production. On the other hand, if there is a bounce from the low phase, production will be positively affected. In the case of the previous scenario, entrepreneurs are discouraged from increasing orders and investing in production, while in the case of the letter, investments increase.
  7. An important characteristic of the business cycle is that there are large fluctuationscost effectivenessin each cycle of the economy. This creates a lot of uncertainty and also makes it very difficult for entrepreneurs to invest.
  8. One of the important features of the business cycle is that most business cycles in different countries are interconnected. This means that when a country goes through a certain phase of the business cycle, that phase will soon start to spread to other countries as well.InternationalAct. For example, if there is a recession in the UK, it will affect the UK import of different countries, which will affect the export of different countries, which will affect them directly.
Also read Balance of payments: meaning, types and importance

Causes of the economic cycle.

One can often ask why a business cycle occurs. There are several reasons associated with the business cycle. Below are some of them:

#1. Population:

The economic cycle: stages, causes, examples and particularities explained (4)

Population directly affects the business cycle, as an increase or decrease in population affects the relationship between demand and supply, which is a direct and major impact on the business cycle.

The more people there are, the greater the demand and the greater the supply and vice versa. Not only population but also population growth influences the business cycle. This can be seen in the large differences between developing and industrialized countries.

#2 Demand:

Sometimes there can be an increase in demand without population growth due to other factors. For example, the sale of an umbrella would increase as if natural disasters occur, such as excessive rainfall.

In this case, the population is the same, but the natural disaster is what impacts. For this reason, demand is directly responsible for creating a business cycle.

#3. Monetary and government policy in the economic cycle:

The economic cycle: stages, causes, examples and particularities explained (5)

This could perhaps be seen as the main cause of the business cycle. Changes in government policy regarding monetary policy affect the business cycle.

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When government policy introduces a new policy that does not allow the sale of a certain product in India, it affects the sale of that product and this in turn affects the stock of the product.

#4. Interest rates:

One of the important factors that affect the business cycle is government interest rates. If there is an increase in the growth rate that discourages investors from investing, then the business cycle shows little growth.

On the other hand, when interest rates are low, more and more investments are made, which increases interest rates.occasionsand let the economy grow.

See also Supply and Demand Management

Examples of the business or economic cycle in history.

The economic cycle: stages, causes, examples and particularities explained (6)

In July 1890, the US experienced a high point in business activity, but by May 1891 it was experiencing a low point.

In January 1913 there was a high point in the United States, but in December 1914 there was a low point.

In July 1990, the US reached a peak, but in March 1991 it became a low point.


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