Business Cycle



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  • Business Cycle


Business cycle



Business cycle

  • The term business cycle (or economic cycle or boom-bust cycle) refers to economy-wide fluctuations in production, trade and economic activity in general over several months or years in an economy organized on free-enterprise principles.



Business cycle

  • The business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around its long-term growth trend.



Business cycle

  • These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession).



Business cycle

  • Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity can prove unpredictable.



Business cycle - Theory

  • Prior to that point classical economics had either denied the existence of business cycles, blamed them on external factors, notably war, or only studied the long term



Business cycle - Theory

  • Sismondi and his contemporary Robert Owen, who expressed similar but less systematic thoughts in 1817 Report to the Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption, caused in particular by wealth inequality



Business cycle - Theory

  • Sismondi's theory of periodic crises was developed into a theory of alternating cycles by Charles Dunoyer, and similar theories, showing signs of influence by Sismondi, were developed by Johann Karl Rodbertus



Business cycle - Classification by periods

  • In 1860 French economist Clement Juglar first claimed the existence of economic cycles 7-11 years long, although he was cautious not to claim any rigid regularity



Business cycle - Classification by periods

  • In the mid-20th century, Schumpeter and others proposed a typology of business cycles according to their periodicity, so that a number of particular cycles were named after their discoverers or proposers:



Business cycle - Classification by periods

  • the Juglar fixed investment cycle of 7–11 years (often identified as 'the' business cycle);



Business cycle - Classification by periods

  • the Kuznets infrastructural investment cycle of 15–25 years (after Simon Kuznets also called building cycle]);



Business cycle - Classification by periods

  • Interest in these different typologies of cycles has waned since the development of modern macroeconomics, which gives little support to the idea of regular periodic cycles.



Business cycle - Occurrence

  • There were frequent crises in Europe and America in the 19th and first half of the 20th century, specifically the period 1815–1939



Business cycle - Occurrence

  • Economic stabilization policy using fiscal policy and monetary policy appeared to have dampened the worst excesses of business cycles, and automatic stabilization due to the aspects of the government's budget also helped mitigate the cycle even without conscious action by policy-makers.



Business cycle - Occurrence

  • In this period, the economic cycle – at least the problem of depressions – was twice declared dead



Business cycle - Occurrence

  • Various regions have experienced prolonged depressions, most dramatically the economic crisis in former Eastern Bloc countries following the end of the Soviet Union in 1991. For several of these countries the period 1989–2010 has been an ongoing depression, with real income still lower than in 1989. This has been attributed not to a cyclical pattern, but to a mismanaged transition from command economies to market economies.



Business cycle - Identifying

  • In 1946, economists Arthur F. Burns and Wesley C. Mitchell provided the now standard definition of business cycles in their book Measuring Business Cycles:



Business cycle - Identifying

  • Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; in duration, business cycles vary from more than one year to ten or twelve years; they are not divisible into shorter cycles of similar characteristics with amplitudes approximating their own.






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