Bussiness Cycle

Parkin and Bade's text "Economics" gives the following definition of the business cycle: The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables. If you're looking for information on how various economic indicators and their relationship to the business cycle, please see A Beginner's Guide to Economic Indicators. Parkin and Bade go on to explain: A business cycle is not a regular, predictable, or repeating phenomenon like the swing of the pendulum of a clock. Its timing is random and, to a large degress, unpredictable. A business cycle is identified as a sequence of four phases: * Contraction: A slowdown in the pace of economic activity * The lower turning point of a business cycle, where a contraction turns into an expansion * Expansion: A speedup in the pace of economic activity * Peak: The upper turning of a business cycle
Four Phases of Business Cycle
Business Cycle (or Trade Cycle) is divided into the following four phases :-
Prosperity Phase : Expansion or Boom or Upswing of economy.
Recession Phase : from prosperity to recession (upper turning point).
Depression Phase : Contraction or Downswing of economy.
Recovery Phase : from depression to prosperity (lower turning Point).
Diagram of Four Phases of Business Cycle
The four phases of business cycles are shown in the following diagram :-

The business cycle starts from a trough (lower point) and passes through a recovery phase followed by a period of expansion (upper turning point) and prosperity. After the peak point is reached there is a declining phase of recession followed by a depression. Again the business cycle continues similarly with ups and downs. * Explanation of Four Phases of Business Cycle
The four phases of a business cycle are briefly explained as follows :-

1. Prosperity Phase
When there is an expansion of output, income, employment, prices and