The Business Cycle

The business cycle represents the market economy’s growth path over time.

There are four phases of the business cycle in the form of:

• Peak
• Contraction
• Trough
• Expansion

The economy rarely reaches the output ceiling (maximum production).

Full employment output occurs when the economy reaches its output ceiling (although frictional and structural unemployment exists).

Business cycles are irregular in terms of timing and unpredictable i.e. sharp movements or fluctuations in GDP are irregular and unpredictable.

Business cycles are characterised by different magnitudes and duration i.e. the magnitude and duration of an expansion or contraction differ.

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