The famous 4 stages of business cycle

The famous 4 stages of business cycle

4 stages of business cycle

The 4 stages of business cycle have been deeply studied by all economist with the aim to predict beforehand the changes that will take place in a certain economy. The theory is quite clear on that. Every stage has its own characteristics, being one the cause of the next one. Must be known thoroughly periods or phases for which it is integrated. According to Mitchell and Burns, the phases of the business cycle can be divided into: Prosperity, Recession, Contraction and Recovery.

A process of change that occurs unexpectedly and cause instability within society it is a crisis, which is subject to an evolution that actually economically after a series of events that could have reorganized the economy of a country is. He also sometimes called Recovery, is the phase of the economic cycle characterized by the revival of economic activities and economic recovery. Increases employment, production, investment and sales.

Economic variables have an upward movement, reflected in economic activity in general, tending to full employment.

Periodicity of the 4 stages of business cycle

An economic cycle has the composed particularity different economic series, which usually do not grow or decrease on the same level causing delays in parameters economic activity.


You can talk long the period of time covered an economic cycle. This time, it is very difficult to measure because these oscillations are subject to different variations. They are causing a change in any time period of the cycle.


We indicate the size in which the business cycle, which influence the different economic shocks that are determining it is established. That is to say, how big can be the top or bottom of a cycle?


It is one that indicate the repetition of an economic cycle over a period of time irregular.


Within an economic cycle, the total movement throughout your swing is within it’s gradually in its different variations which differ in composition according to its delay or acceleration with respect to the existence of a crisis.

4 stages of business cycles

Prosperity or Expansion

It is the peak of the economic cycle. An increase is presented in the price level unequally by different changes in costs. These prices also depend on an increase in the volume of money in circulation, bringing with it an expansion in bank deposits, and also accompanied by an increase in profits and investment.


It is one that covers a relatively short time, it is characterized by marking a bending point where the forces of production contract, there are also tensions in the banking system and in liquidating loans starting a low price.

Contraction or Depression

It is the lowest point of an economic cycle, where there is low productivity unevenly causing a distortion in the cost-price. Depression can get to cover a short or long period of time.


Here, you will begin to present a feature of harmonization of economic activity satisfactorily; it will tend to full employment (which all factors of production are employed), an increase in production, wages, prices and interest rates.

Cyclical economic crisis

The 4 stages of business cycle show the process of this kind of crisis, going from a time of prosperity, another crisis, where the economy experiences a recession and then reaches reactivation. This is due to competition between capitals, where the constant capital increases and investment variable capital is reduced by not hiring more labor, reducing benefits are reduced offer economic crisis:

stages of business cycle

This is due to market imbalance where there is no supply of goods and services, affecting corporate profits and jobs.

Economic crisis demand

It is the same thing as above but with respect to the demand for goods and services, leading companies to accumulation of stock product so great that prices would fall merchandise and of course, profits.

Financial economic crisis

Where the Bank System and Money will go through great difficulties…This has nothing to do with the production of goods or the use thereof in the market. Rather, here the goods are overvalued and as many cannot afford them, their prices collapse, creating uncertainty and bank runs.

The cyclical upswing

A renewal of capital that has multiplier effects on economic activity occurs generating a growth phase and both overcoming the crisis.


We understood that the 4 stages of business cycle has always been a controversial subject at different times during the last hundred years. If an individual could accurately predict the phases of the business cycle would become rich easily. Perhaps that is why many economists have devoted considerable effort to study. Regardless of their differences, the various theoretical approaches usually agree that the cycle can last several years, which is persistent enough correlated to movements in the time series are presented.