BUSINESS CYCLES

Meaning:

The business cycle is the tendency for output and employment to fluctuate around their long-term trends.  The figure below presents a stylised description of the business cycle.  The continuous line shows the steady growth in trend output over time, while the broken line indicate the actual output over the time period.

Point A represents a slump, the bottom of a business cycle while point B suggests the economy has entered the recovery phase of the cycle.  As recovery proceeds the output rises to a point C above the trend path; we call this a boom.  Then as the line dips via D towards the trend line with output growing less quickly during the recovery and least quickly (perhaps even falling), during a recession.