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What Is a Business Cycle ?

Wednesday, February 9, 2022

/ by Admin

 Business Cycle 

"Business cycles are a type of fluctuation found in the aggregate economic activity of nations…a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions…this sequence of changes is recurrent but not periodic." That description, from the 1946 magnum opus by Arthur F. Burns and Wesley C. Mitchell, Measuring Business Cycles, remains definitive today.1 In essence, business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity, and the comovement among economic variables in each phase of the cycle. Aggregate economic activity is represented by not only real (i.e., inflationadjusted) GDP—a measure of aggregate output—but also the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates. Key Takeaways  Business cycles are comprised of concerted cyclical upswings and downswings in the broad measures of economic activity—output, employment, income, and sales.  The alternating phases of the business cycle are expansions and contractions (also called recessions). Recessions start at the peak of the business cycle—when an expansion ends—and end at the trough of the business cycle, when the next expansion begins.  The severity of a recession is measured by the three D’s: depth, diffusion, and duration, and the strength of an expansion by how pronounced, pervasive and persistent it is.

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