What Is a Business Cycle?
The business cycle describes the rise and fall in production output of goods and services in an economy.
Business cycles are generally measured using the rise and fall in real gross domestic product (GDP).
It would be nice if there was steady growth of GDP (National Income).....
.......but over time there have been times when growth has slowed down or even become negative.
Recession:
Two or more quarters (six months) of negative GDP growth.
2008 / 9 the recession was caused by a Western banking crisis.
Banks failed or were rescued by the government.
In a recession demand will fall for many goods and services, particularly non-essentials.
Unemployment will rise.
Business confidence is low.
There will be an increasing number of business failures.
Recovery:
Demand begins to pick up.
Business confidence increases.
Unemployment starts to fall.
Boom:
This is the peak of the business cycle.
GDP is growing at a historically fast pace.
Existing businesses may expand and new businesses are being created.
Wages are likely to be rising.
'Demand pull' inflation is likely to be the major economic problem at this stage of the trade cycle.
Downturn.
GDP growth begins to slow down.
Demand for goods and services flattens out and may begin to fall.
Unemployment will begin to rise and businesses will be much less likely to expand.
The impact of the business cycle on business.
What will happen to the following at each stage of the business cycle?
Output.
Profit.
Business confidence and investment.
Employment.
Business start-ups and closures.
Some businesses will do well in a recession.
Can you think of any examples and the reasons why.
