BUSINESS CYCLE

During the last one century the world has witnessed remarkable economic progress. But it would be incorrect to think that the economic progress has been a steady and continuous movement forward. You might be aware that periods of business prosperity are followed by periods of adversity. The historical evidence shows that most economies of the world have experienced business cycles at different stages of their economic growth. The economic history of various economies is, in fact, a history of ups and downs, booms and slumps, prosperity and depression. Briefly speaking, business cycles have characterized the free enterprise industrial world over the past one hundred fifty years.

 BUSINESS CYCLES

The business cycle is the periodic but irregular up-and-down movements in economic activity and the fluctuations in real GDP and other macroeconomic. A business cycle is an irregular, unpredictable, or non-repeating phenomenon like and its timing is quite uncertain and unpredictable. 

Business cycles are a sort of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises:  a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; this sequence of changes is recurrent but not periodic.

A business cycle is characterized by the alternating expansionary and contraction wavy movements in aggregate business activity and there is some regularity in res

FEATURES OF BUSINESS CYCLE

The following key features of business cycle may be enumerated as follows:

1. Aggregate economic activity. : 
 A business cycle is featured by the presence crisis with peak and trough turning points are asymmetrical, with the peak having pointed steep bends on either side while the trough has gently upward sloping sides.” A business cycle represents wave-like deviations in business activity from the equilibrium or trend line. There are equilibrium points and equilibrium areas that cluster around these equilibrium points. 

 Defined broadly as fluctuations of ‘aggregate economic activity’.  Fluctuations in a single, particular economic variable such as real GDP are not taken into account. Although real GDP can be the sole variable that closely measures aggregate economic activity.

2. Expansions and contractions:
The period of time during which aggregate economic activity is falling is a recession. If the recession is severe, it turns into a depression. Having reached the low point of the contraction known as the trough, aggregate economic activity starts increasing. The period during which aggregate economic activity increases is an expansion. Having reach the high point of the expansion, the peak, aggregate economic activity starts declining again. The whole sequence of decline followed by recovery measured from peak to peak or trough-to-trough is termed as a business cycle. However,  business cycles are purely temporary deviations from the economy’s normal growth path. Peaks and troughs in the business cycle are known collectively as turning points.

3. The co-movement among individual economic variables: Indeed, the co-movement among series, that takes into account possible leads and lags in time, was the focus of Burns and Mitchell's methodology who considered the historical concordance of a number of series, consisting those measuring output of goods, national income, whole sale prices, interest rates of interest, banking transactions, and services transportation provides.  They employed the clusters of turning points in these individual series to find out the monthly dates of the turning points in the overall business cycle.  In the same manner, the emphasis on the consistent pattern of co-movement among various variables over the business cycle led directly to the creation of composite indexes. 

4. Division of business cycles into separate phases: Division of business cycles into separate phases or regimes was another prominent feature of Burns and Mitchell’s definition. They treated expansions separately from contractions.  For example, certain series are classified as leading or lagging indicators of the cycle, depending on the general state of business conditions.