The Business Cycle

Through our studies of economics, in this class, the business cycle has been the most complex, yet most fascinating topic I have ever studied. Through my studies I have found that every part of economics is linked to this cycle of ups and downs. The business cycle involves four distinct phases. In the expansion phase, or growth phase, real Gross Domestic Product (GDP) is on the rise. Inflation is stable, or down, and the majority of the labor force is employed. During this time the country is enjoying a time of prosperity and wealth. This phase is followed by the peak phase, marking the end of an expansion phase. At this peak phase one of two things could follow, either the market place will flatten off, remain steady for a while, and then have another expansion phase, or it will begin a contraction phase, or a recession. In the contraction phase the GDP will start to fall. Inflation will be on the rise, and unemployment rates start to climb. The contraction will continue into the trough phase. A point at which the contraction hits it's bottom and stabilizes. Like the peak phase one of two things can follow. After a period it can either begin an expansion phase, or go into another contraction. However, if a peak levels off, backs up a little then climbs again we really can't call this another expansion phase. The expansion phase just took a little break and then kept going. Meaning that we were never really at the peak yet. It is the same thing for the trough phase. There are a lot of variables that determine where we are and where we are going and these variables are divided into three categories. They are: Leading Indicators, Coincident Indicators, and Lagging Indicators.