The Economic Cycle and its phases

The Economic Cycle and its phases

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The business cycle is a phenomenon related to repeated fluctuations in the rates of growth, employment and other macroeconomic variables, for a period of time, which generally takes several years. Economic cycles have a number of common characteristics that tend to repeat but have highly variable amplitudes and periods. Economic cycles are changes in aggregate supply and demand expressed in ups and downs that recur with some regularity over the years.

Fluctuations in the economy are often called the business cycle. As suggested by this expression, economic fluctuations correspond to changes in the economic situation. When real GDP is growing rapidly, the economic situation is good. During those periods of economic expansion, most companies have observed increasing profits due to find many customers ready to buy. When real GDP falls during recessions, companies have problems. During these periods of economic contraction, sales and profits fall at most. The term business cycle is somewhat misleading, since it suggests that economic fluctuations follow a regular and predictable pattern. In reality, economic fluctuations are not at all regular and almost always impossible to predict with much accuracy.

business-cycle-graph

The economic cycle

Although there is no general consensus on the number and names of the stages that exist in an economic cycle, we classify them in these: recession, depression, recovery and boom.

  • Depression/Slump:┬áThere are periods of stagnation where the production process practically stops. It is the real fall of the economy from which at this stage it can move to the other phase if changes in the economic policies are made right. These phases are given by the capitalist movement and not depend on the will of man.
  • Recovery: Economic cycle that is characterized by the revival of economic activities, increase employment, production, investment and sales. The economic variables have an upward movement, reflected in economic activity in general, lying at almost full employment.
  • Boom: Economic cycle where all economic activity is in a period of prosperity and swing. The boom can last variably whether it lasts for years as only a few months, according to economic conditions. Production to stagnate crisis comes again and start a new economic cycle.
  • Recession: There is a relative decline of all economic activity in general. Activities in general. Economic activities: production, trade, banking, etc., decrease dramatically. During the crisis, the contradictions of capitalism are emphasized, there is excess production of certain goods in relation to the demand while production in some industries lack. There is increasing difficulty in selling such goods. Many businesses fail. Unemployment increasing.

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