A business cycle is the term for the recurring fluctuations in economic activity. The cycle is comprised of five stages: recession or period of contraction, episode of trough, recovery, economic expansion or growth, and a period of peak. Recession happens when the economy starts to slow down. When the slowing down hits a bottom level, that is called a trough, after which a period of recovery follows. The growth or expansion period happens when the economy starts to pick up again until it reaches a peak or when the economy reaches a state of unreasonable exuberance.
how does it work
Knowing the business cycle can be very important to your buying, investing, and business decisions. For instance, during contraction, businesses aren’t doing as well so the stock market may not be doing as well, and interest rates are lower in order to stir business and consumer activity.