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The business cycle is a period of macroeconomics expansion followed by a period of macroeconomic contraction. The usual business cycle consists of four phases. The four phases include expansion, peak, contraction, and trough. In the expansion phase, production increases while employment, wages, and business profits also rise. Expansions are referred to as recoveries, booms, upturns, periods of prosperity, and upswings. A peak marks the end of an expansion and the beginning of a contraction. When real GDP stops rising, the economy has reached its peak, the height of an economic expansion. During the contraction phase of the business cycle, production, employment, wages, and business profits all fall. Contractions are variously called recessions, downturns, downswings, and liquidations. The final phase is a trough =, A trough is when the economy is at the lowest point in an economic contraction, when real GDP stops falling. The business cycle also has contributing factors. Business investment spending is one of the important factors in business cycles. Investment spending is considered the most important component of the aggregate or total demand. Increases in investment shock a subsequent increase in aggregate demand, leading to economic expansion. Interest rates and credit also impact business cycle. When interest rates are low, companies borrow money to make new investments often adding jobs to the economy. One result of rising interest rates there is less output and industries produce more consumer goods. In external shock confidence is high and people adopt more free-spending habits, other customers are deemed to be more likely to increase their spending as well. The indicators of the business cycle are stock prices, interest rates, and manufactures’ new orders of capital goods.
Recession cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. If recession is especially long and severe, it may be...