Video:What Is the Business Cycle?

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Transcript:What Is the Business Cycle?

Definition of a Business Cycle

Parkin and Bade's text "Economics" gives the following definition of the business cycle: The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables.

Parkin and Bade go on to explain: A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degree, unpredictable.

Phases of a Business Cycle

A business cycle is identified as a sequence of four phases:

• Contraction: A slowdown in the pace of economic activity
• The lower turning point of a business cycle, where a contraction turns into an expansion
• Expansion: A speedup in the pace of economic activity
• Peak: The upper turning of a business cycle

If a contraction is severe enough, a recession occurs. A deep trough is called a slump or a depression.

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