What is Business Cycle

Business cycle refers to the vitality of economic growth. It can also be defined as a fluctuation or regular swings in the tempo of a country’s economic growth. These up and downs in the overall business affects a number of factors e.g. employment rates and general price levels. A business cycle is characterized by four cycles; contraction, expansion, peak and recessions.

A contraction is a slowdown in the pace of activities, an expansion is a speed up in the economic pace of a country, and the upper turning of a business cycle is called a peak. A recession finally is experienced when a severe contraction is experienced. A recovery might be considered as a characteristic of business cycle. This is the period when a country is coming back from a recession.
There are certain factors that shape business cycles. Volatility of investment spending: variation in investment spending is an important factor in business cycles. Increase in investment increases aggregate demand which leads to expansion in the economy. Decreases in investment bring out an opposite effect. These effect has been noticed in a number of cycles e.g. the great depression in 1929 was caused by the collapse in investment due to the stock market crash in 1929.a similar event was in the 1950s was due to a capital goods boom.

Momentum is another factor that affects business cycle. In consumer spending economist cite the follow the leader mentality. When consumer confidence is high, spending habits become freer. Customers are must likely to increase their spending as well. Variations in inventory, the contraction or expansion level of inventories of goods in a business contribute to business cycles. An inventory being the stock of goods a firm keeps meeting the demand of their product. When inventories decline, businesses fall short of them therefore they start producing output that is greater than sales. An economic expansion occurs. However, as they consistently produce products the level of purchase goes down; the firm starts cutting down on their inventories

Technological innovations also impact business cycles. Improved technology in manufacturing, communication, transportation and other areas have an effect in the industry. Technological innovation followed by increase in investment, does not take place in regular intervals. Decreased investment due to variation in the pace of technological innovations, lead to business fluctuation in the economy. Some business cycles are political generated politician running for a reelection, motivate people to use macroeconomics. This is usually to serve the interest. Monetary policies, fluctuation in export and import

 This causes the patterns of recession or depression and recovery. There different factors that are considered to cause business cycles however not every one agrees on the factors that cause business cycles.

Uneven government economic policies are one of the key factors for business cycles. However, there are different perspectives on how this factor causes business cycles. Some emphasize tat it is uneven government policies the mainly cause business cycles others emphasize that they are the key factors used to even out business cycles. These two theories play a role in the factors believed to influence the contraction and expansion of total saving by the public and of new capital investment by business firms as the most immediate cause of booms and busts in the economy at large. 

The overall level of demand for consumer goods keeps shifting due to shifts in public allocation of their incomes between spending for immediate consumption. It is believed that the public saves too much hence it throttles total demand. Therefore, in business cycles, the government has to come in from time to time and artificially increase total demand using its fiscal policies.

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