What is a business cycle?
The term “business cycle” or (or economic cycle or boom-bust cycle) is the natural rise and fall of economic growth that occurs over time. From a conceptual view, the business cycle is the rise and fall movements of levels of GDP (Gross Domestic Product). Also refers to the period of expansion and contractions in the level of economic activities (business fluctuation) around a long-term growth trend.
Factors that affect a business economic cycle
A recession is a period of negative economic growth for two consecutive quarters. It is also a business cycle contraction which results in a general slowdown in economic activity. Recessions usually occur when there is a wide spread drop in spending. This might be triggered by various events such as financial crisis, external trade stock, an adverse supply shock or the bursting of an economic bubble.
During recession, mass layoffs make new headline news and unemployment rate slowly rises. That happens toward the end of the contraction phase because it’s a lagging indicator. Businesses wait to hire new workers until they are sure the recession is over.
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is more severe than an economic recession. Depressions are characterized by their length, by unusual large increases in unemployment, falls in the availability of credit, shrinking output, bankruptcies and sovereign debt defaults, reduced trade and commerce, and sustained volatility in currency values.
A bubble is defined as a rapid escalation of asset prices that is not justified by the fundamental supply and demand factors of the asset. Bubbles can occur in any traded commodity or financial instrument.
Because it is often difficult to observe intrinsic values in real-life markets, bubbles are often conclusively identified only in retrospect, once a sudden drop in prices has occurred. Such a drop is known as a crash or a bubble burst.