Business Cycles

Business Cycles Fluctuations in the overall rate of national economic activity with alternating periods of expansion and contraction; these vary in duration and degrees of severity; usually measured by real gross domestic product (GDP). .

Business cycles are affected by the actions of businesses, consumers, and the government. In turn, businesses, consumers, and the government are affected by business cycles.

The four key phases of the Cycle: Peak Economy is flourishing Contraction Economic slow down Trough Low point Economy stops slowing Expansion Economy begins to grow again

Impact of business cycles on business activities: Businesses react to business cycles by: expanding operations during periods of recovery or expansion. investing in new properties, equipment, and inventories during expansion. hiring new employees during expansion. curtailing operations during periods of recession. laying off workers during recession. cutting back on inventories during recession.

Impact of business cycles on consumer activities: Consumers react to business cycles by: developing a sense of optimism during recovery and expansion. spending more money on material goods and luxury items during recovery and expansion. developing a loss of consumer confidence in the economy during periods of recession. reducing spending during a recession. businesses react to these fluctuations in consumer demand by altering their operations.

Impact of business cycles on government activities: Government reacts to business cycles by: reducing interest rates during recovery and expansion increasing taxes to fund recovery and expansion increasing spending to stimulate recovery and expansion

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