The Impact of Business Cycles on the Economy

The business cycle is the rise and fall of company operations within the market, including periods of
success and periods of loss. Company cycles do not take place at regular intervals. These processes
occur irregularly yet frequently. Typical market cycles include growth, peaking, contraction and
recovery. Businesses are gr during the expansion process. When dramatic market cycles occur in
various industries, they also impact the national economy as a whole and not just the fluctuating
industry.

Expansion

Due to create more work. This leads to an rise in wages and a reduction in the unemployment
rate. When the economy is rising at a fairly fast rate, it brings upward pressure on the general
prices of goods and services, resulting in inflation. Inflation is also an indication of too much
money circulating in the economy that depreciates the value of the dollar. To help slow
inflation rates and stabilize currency value, the Federal Reserve Board can raise interest rates
to discourage borrowing. This helps to reduce the economic money supply and prevent
further depreciation of the dollar

Peak
A peak occurs when the expansion process of the business cycle is about to stop. Such economic
indicators, such as a drop in the number of new jobs added to the economy and an increase in the
unemployment rate, may mark the peak of the expansion cycle. During the economic boom, the
economy is no longer rising, retail sales are increasing and economic production is
decreasing.Economic production is the cumulative value of all goods and services produced by the
economy. Both of these factors will contribute to more job losses and also contribute to an
oncoming economic recession..

Contraction
The period of contraction of the business cycle is when the economy starts to decline. Economists
often refer to this time as a recession or slowdown in the business cycle. Economic production is
increasing during this time. This results in work losses and an rise in unemployment. There is not
enough currency circulating in the economy during times of economic recession, as consumer
spending is increasing. To encourage borrowing and increase consumer spending, the Federal
Reserve Board could reduce interest rates.

Recovery
If economic production improve and firms begin to grow, it means that the business cycle is in the
recovery process. The employment rate is increasing during this period, while the unemployment
rate is dropping. The economic recovery phase of the business cycle can be difficult to forecast as
certain factors that cause a short-term boost to the economy, but do not necessarily imply a lasting
recovery. The holiday shopping season is an example of a short-term stimulus. During this period,
retail sales and employment might increase but only temporarily