Definition“The business cycle in the general sense may be

defined as an alternation of periods of prosperity and depression of goods and service”

- HarberlerIn simple words “ A business cycle represents the

different stages which every business organisation faces throughout its tenure, in the form of a wave like structure

MAIN FEATURESPervasive in nature,

Recurrent but not periodic,

Persistent

Each cycle differs in length and severity

Phases of the Business Cycle

The phases of the business cycle are known as:

GrowthPeakRecessionTroughRecovery

While fluctuations are in practice highly irregular, the most common illustration shows a standard periodic cycle.

GrowthCan be viewed as a “virtuous cycle”

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Sales Increase

Production Increases

Employment Increases

Income Increases

Causes of GrowthInclude the following:

business is newly formedmore branches of the business are openedneed for the product rises or is createdintroduction of new or improved product

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The PeakAccounts for the time when business activity has reached a

maximum, including:

full employment

level of output at or near capacity

Often causes higher prices

Acts as a transition point from growth to recession

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Causes for the PeakInclude the following:

boom in the economy

sudden need or want of the product

availability of product rises

the product is unique for the time being

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Recession• May also be referred to as contraction• Follows the peak• Is commonly defined as two consecutive

quarterly declines in GDP• Accounts for a decline in:

– total output– income– employment– trade

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RecessionOccurs in all companies

Rarely causes price level to fall

unless severe and prolonged, as in a depression

Differs from depression

depression occurs when GDP drops by more than

10% while a recession experiences a less severe drop

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Causes of RecessionInclude the following:

product falls behind in usefulness, technology or wantvalue of the dollar declinescustomer debt

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The TroughMarks the lowest levels during a recession

Accounts for the least amount of output and

employment

May be short or long lived

Ends the period of recession and begins growth

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Causes of the TroughInclude the following:

the product is severely outdated

need or want for the product is at an all time low

the product has not changed over time

many customers already possess the product

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The Recovery• Turning point from depression to expansion

• Steady rise in output, income, employment, prices

and profits

• Banks expand credit

• Revival slowly emerges into prosperity, and the

business cycle is repeated

Causes of Business CycleInterest rates

Changes in house prices

Consumer and business confidence

Multiplier effect

Accelerator effect

Inventory cycle

Measures of Controlling Business Cycle

 Fiscal policy

 Monetary policy

State Control of Private Investment

International Measures

Reorganization of Economic System