Business Cycle

The business cycle refers to a four-stage sequence of change in economic activity, considered natural in competitive market economies. The business cycle consists of (1) a contraction or decrease in economic activity, (2) a trough or the turning point from contraction to expansion, (3) expansion or increase in economic activity, and (4) a peak, the highest level of economic activity before contraction begins again.

Since a business cycle simply describes the up-and-down fluctuation of an economy, it follows no particular schedule; although economists may predict how long a period of contraction or expansion may last, there is no way to be completely certain when the economy will reach a low point or high point