The Economic Cycle

The economics cycle, otherwise known as the business cycle, is split into 4 parts. The cycle can be shown graphically as well. The 4 part of the cycle are the boom, recession, trough and recovery.

The boom is the peak of the growth and profit. In this part of the cycle there is low unemployment and high consumer confidence. There is a lot of trade due to high demand for imports and but there is also inflation.

Next in the cycle is the recession. A recession is a fall in GDP in two successive quarter. As the boom is the peak, it must decrease to increase again. There is decline in aggregate demand and an increase in unemployment. Consumer and business confidence decreases sharply as well.

After that is the trough. The trough is the lowest part of the recession. There is low demand for imports and low inflation. This is the time where there are a lot of sales as there is high supply but no demand for products. De-stocking and discounting occurs. At this low a lot of investment occurs as house prices fall.

The final part of the cycle is the recovery. This part of the cycle is when the economy builds back up to a boom. We see rising consumer confidence, increasing house prices and higher investment.

There is a wide variation in length. Since the 1950s the average cycle length has been 5.5 years.