Definition of Business Cycle

What does the term "Business Cycle" mean? What is meant by the word "business cycle"?

As you have probably been able to observe in your own life, economic activity is always fluctuating.

There are periods of contraction; there are periods of growth; there are periods of recovery. This is the business cycle.

The five stages of the business cycle are:

Definition of Business Cycle - Financial Dictionary1. Growth.
2. Peak.
3. Recession.
4. Trough.
5. Recovery.

During periods of contraction, consumers will cut back on their expenses, employers will cut back on jobs and economic activity will be reduced.

Eventually a bottom is found ("trough"), and a recovery can begin.

During periods of expansion, consumers will spend more, companies will hire more workers to meet increased demand, and economic activity will grow. Eventually a top is hit ("peak"), and contraction will begin.

According to Wikipedia, since 1854, the United States has encountered 32 cycles of economic expansions and contractions, with the average contraction lasting 17 months and the average expansion lasting 38 months.

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