Understanding Business Cycle
The business cycle refers to the fluctuations in GDP, indicating the economy's expansion and contraction phases over time.
It comprises one peak and one trough. The period between these two is the cycle's length. The peak signifies rapid economic growth, while the trough indicates slower growth, both measured in real GDP growth.
Detailed View of Business Cycle
Business cycles represent the nation's macroeconomic activity changes. They are also known as economic or trade cycles. The National Bureau of Economic Research (NBER) maintains the economy's historical phases record.
There are different views on managing business cycles. The Keynesian theory emphasizes the demand side, suggesting government intervention when demand decreases. However, Real Business Cycle and New Classical economics believe in the economy's self-adjustment with changes in aggregate supply.
The economy experiences periodic changes in economic activity levels, known as business cycle phases. While these fluctuations may self-adjust, the government and central bank often intervene using policies to manage these cycle effects. The aim is to prevent unfavorable situations like stagflation or hyperinflation.