Let us make in-depth study of the meaning, phases and features of business cycles. Meaning of Business Cycle: The period of high income, output and. Business cycles can be defined as recurring and fluctuating levels of economic activity of a country. In other words, business cycles refer to ups and downs in. A business cycle is a cycle of fluctuations in the Gross Domestic Product (GDP) around its long-term natural growth rate. It explains the expansion and contraction in economic activity that an economy experiences over time. These are measured in terms of the growth of the real GDP, which is inflation adjusted.


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Previously the longest postwar recessions were those of andboth of which lasted 16 months. It started with the easy access to bank loans and mortgages. Since new homebuyers could easily afford loans, they purchased them.

More and more homebuyers business cycle definition purchasing homes resulting in an increase in demand for homes. Thus, home prices started to increase.

The Federal Reserve continued to lower the interest rate and the Federal Government put specific guarantees on mortgages, allowing banks to lend money even cheaper. A boom is characterized by a period of rapid business cycle definition growth whereas a period of relatively stagnated economic growth is a recession.

These are measured in terms of the growth of the real GDP, which is inflation business cycle definition.

What is business cycle? - Definition from

Business cycle definition business cycle moves about the line. Below is a more detailed description of each stage in the business cycle: In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services.

  • What is a Business Cycle?
  • What is a Business Cycle?
  • Business Cycle

Debtors are generally paying their debts on time, the velocity of the money supply is high, and investment is high. This process continues until economic conditions become favorable for expansion.

Prescottand more generally the Chicago school of economics freshwater economics. They consider that economic crisis and fluctuations cannot stem from a monetary shock, only from an external shock, such as an innovation. Vernon stated that some countries specialize in the production and export of technologically new products, business cycle definition others specialize in the production of already known products.

The most developed countries are able to invest large amounts of money in the technological innovations and produce new products, thus obtaining a dynamic comparative advantage over developing countries. Recent research by Georgiy Revyakin proves initial Vernon theory and shows that economic cycles in developed countries overrun economic cycles in developing countries.

In case of Kondratiev waves such products correlate with fundamental discoveries implemented in production inventions which form the technological paradigm: Richard Arkwright's machines, steam engines, industrial use of electricity, computer invention, etc.

Simultaneous technological updates by all economic agents as a result, business cycle definition formation would be determined by highly competitive market conditions: Politically based business cycle[ edit ] Another set of models tries to derive the business cycle from political decisions.

The partisan business cycle suggests that cycles result from the successive elections of administrations with different policy regimes.

Business cycle

Regime A adopts expansionary policies, resulting business cycle definition growth and inflation, but is voted out of office when inflation becomes unacceptably high.

The replacement, Regime B, adopts contractionary policies reducing inflation and growth, and the downwards swing of the business cycle definition. It is voted out of office when unemployment is too high, being replaced by Party A.

The political business cycle is an alternative theory stating that when an administration of any hue is elected, it initially adopts a contractionary policy to business cycle definition inflation and gain a reputation for economic competence.

It then adopts business cycle definition expansionary policy in the lead up to the next election, hoping to achieve simultaneously low inflation and unemployment on election day. He did not see this theory as applying under fascismwhich would use direct force to destroy labor's power.


Earlier, business cycles were thought to be periodic with anticipated business cycle definition. However, in recent times, business cycles are widely believed to be irregular features of an economy, varying in frequency, degree, and time interval.

For example, the period of Great Depression in s experienced a decline in economic activity for more business cycle definition 40 months.

However, since World War II, most of the business cycles have persisted for the period of three to five years.