Definition
The economic cycle is the fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, total employment, and consumer spending can help to determine the current stage of the economic cycle.
What are the four stages of the Economic Cycle?
The four stages of the economic cycle are also referred to as the business cycle. These four stages are expansion, peak, contraction, and trough.
What causes an economic cycle?
The causes of an economic cycle are widely debated among different economic schools of thought. Monetarists, for example, link the economic cycle to the credit cycle. Here, interest rates, which intimately affect the price of debt, influence consumer spending and economic activity. On the other hand, a Keynesian approach suggests that the economic cycle is caused by changes in volatility or investment demand, which in turn affects spending and employment.
Why It’s Important
- The economic cycle refers to the overall state of the economy going through four stages in a cyclical pattern.
- Economic cycles are a major focus of economic research and policy, but the exact causes of a cycle are highly debated among the different schools of economics.
- Insight into economic cycles can be very useful for businesses and investors.
