Definition: The Business Cycle, also called as Economic Cycle or Boom-Bust Cycle refers to the periodic booms and slumps in the economic activities reflected by the fluctuations in the aggregate economic magnitudes, including employment, investment, total production, wages, bank credits, etc.
In other words, the business cycle refers to the ups and downs defined in terms of expansion or recession that an economy experiences over a period of time. The business cycles are usually measured by taking the real growth rate of GDP (gross domestic product) into consideration.
These upward and downward movements in the economic magnitudes constitute the different phases of the business cycle that repeat themselves over a period of time. These are:
- Expansion of Economic Activites
- Recession- the downswing
- Trough, the bottom of the depression
- Recovery and Expansion
The length of the business cycles is not usually of the same length and can vary between minimum 2 years to 12 years. But, however, some of the business cycles have been short-lived, i.e. lasted for only six months or two to three years. These fluctuations in the economy are termed as the business cycles since these are recurring in nature that occurs periodically, in more or less regular fashion.