Video:What Is the Business Cycle?

Transcript:What Is the Business Cycle?

Hello! I am Edward Bovea for About.com. As an accountant I know how crucial it is to be well informed on the business cycle, especially in this current state of the economy.  In this video I will give a brief description about the four sequence phases that composes a business cycle.

Definition of the Business Cycle

Perkin and Bade in the text’s “economics” define the business cycle as the periodic but irregular up and down movements in economic activity, measured by the fluctuations in real GDP and other macroeconomic variables. In simpler terms there are no indefinite indications on the future of the economy because it is always in a constant change. The economy is unpredictable.

Four Phases of the Business Cycle

Phase one is contraction which is the reduced pace of economic activity, businesses begin to go into a slower phase.

Phase two is the revolving point in the business cycle, in which the contradiction evolves into an expansion.

Phase three is the expansion; this is when the economy begins to build up and rotates into a faster pace.

Phase four is the peak; this is the highest point in the business cycle. An example of a peak in the economy was the housing peak, were many individuals and investors attained properties for investment purposes.

Recession and Depression in the Business Cycle

As the saying goes “What goes up must come down”, this is a severe state in the economy. An example is when unemployment rate rises, leaving many individuals jobless. When the economy continues into a deep recession it can develop into a depression, which is the lowest and brutal state of the economy.

Although the economy is unpredictable it is always better to be safe than sorry, an emergency savings account can benefit you in the case of unfortunate economic events.

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