Understanding Business Cycles

Business economics is a discipline in economic science that utilizes statistical data and economic theory to examine the economic structure and interactions of firms and their relationships with product markets, capital and labor markets. The study of business and economic activity is the subject of numerous books, as well as hundreds of articles and research studies. The breadth and depth of this field provide numerous opportunities for graduates and young professionals wishing to break into a variety of business professions. In addition to solid graduate business education, the field also offers many entry level positions in business and economics. Graduates and young professionals interested in these fields can pursue advanced degrees at online business schools or traditional colleges.

As one of the few areas of study where graduate school is not required, economics courses provide an excellent background for future business leaders. Businessmen and women in positions of leadership are always in need of economic theories and insights. In fact, good business leaders know that the success of their company and its employees often rests on the proper management of the national economy. This is why many economists are often drawn to the business world, which is largely based on the application of economic principles and policies.

Understanding how business cycles affect the national economy provides a unique window into understanding how and why particular firms are successful or fail. Understanding the business cycle is the key to improving business practices, and making positive changes to improve the economy. By gaining a solid understanding of the business cycle, businesspeople and other decision makers can learn how to better manage their companies. Those who master the concepts of the business cycle will be well prepared to make important decisions for the company and its employees.

One of the major concepts that business and economics students learn during classes at an online business school is the business cycle. In the business cycle, business cycles represent the overall growth or contraction of an economy. Business cycles start when the economy is in the first or second year of a recession, or when there is a noticeable decline in quarterly gross domestic product (GDP), business activity picks up after the recession is over and then drops rapidly after the recessionary lag. Business cycles can last several years, or they can go on for as long as a decade. Usually, business cycles have a definite pattern, which helps forecasters determine which direction the economy will likely go in.

One of the most important factors that affect business cycles is the state of the overall economy. Economic expansions always tend to take the economy further in one direction or another. An economy that is expanding usually has high hopes for the future, and uses the expansion process to boost employment, invest in infrastructure, and increase sales. On the other hand, an economy that is contracting tends to use the contraction process to get back to flat or even slightly declining levels before it can fully recover.

The business cycle can also be represented graphically: as a line with a beginning point (the expansion phase) and an end point (the contraction phase). When we look at a simple version of the business cycle, we see that it can be thought of as a four-step cycle: start(0), expansion, decrease, and stall. Starting at the current economic stage (0), the economy is considered to be in an expansion phase; therefore, all economic activity is expected to expand.

As the economy gets weaker (and the economy’s potential growth rate fall), business cycles tend to become tighter, with slower, gross domestic product growth, and higher interest rates. Inflation also tends to rise as business costs rise, and unemployment increases. Stalled at a low point, the business cycle picks up again as the economy recovers and starts growing again, adding to both gross domestic product growth and inflation. When this happens, the economy is said to be in a recession.

Recession is often considered a final stage in a business cycle. It occurs when a prolonged period of bad economic circumstances is extended, resulting in little or no growth in business spending, output, or even existing businesses. Because of this, a vicious cycle begins that causes layoffs, retrenchments, and decreases in business income. At this point, the government should be called on to do whatever is necessary to ensure that the economy recovers, and small businesses continue to thrive.

Leave a Reply