The Three Steps of the Business Cycle: Understanding Economy

In the economic world, the business cycle is the term that describes the contraction and expansion of the economy over time. This cycle tends to be very unpredictable, as the economy is constantly changing depending on world events. However, looking back in time, economists can see that takes three processes for the cycle to come full circle. These three phases are contraction, recovery, and expansion.

The term contraction describes the economy when there is a rise in unemployment and a slowdown in the economy as a whole. During this time, consumers often the producers have the slow their production lines as well because the demand is much lower than usual. When the gross domestic product of a country declines for two quarters is wrote, then the economy is technically known to be in a recession. If the recession it’s especially bad, it can lead to a full-on depression, which means the economy is having a lot of problems.

After the contraction is over, the cycle begins the recovery period. In this part of the cycle, the economy begins to rebuild itself and start to grow. Jobs become available again, education grows, and unemployment rates go down. The consumer starts to buy things again and businesses are able to expand their inventories and produce at the rate that they usually do. This time connects the contraction phase and the expansion phase.

The final stage of the cycle is known as expansion. During the time of expansion, the country’s economy is in very good shape. The economy because very strong and continues to grow daily, and the employment rate is very, very low. Aside from the regular business, businesses tend to expand and even develop new products to capitalize on the current financial situation. Consumers are able to make purchases that they would normally not be able to make, and the country as a whole gets richer.

These phases often change based on world events and other situations within a country. Things like war, natural disasters, and other unknowns can either have a positive or negative effect on the economy overall. Things can change quickly if the country is overrun by panic. Panic can lead to the start of the cycle again, causing recessions, depressions, and overall harming the economy. Most the time, the country will recover, it just becomes a matter of time. The cycle seems to be never-ending because of the economy is never completely stable and the possibility of change is always likely.