What Does Business Cycle Mean?

The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration. Read more: http://www.investopedia.com/terms/b/businesscycle.asp#ixzz1ZtPB61jy

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2010) An editor has expressed a concern that this article lends undue weight to certain ideas, incidents, controversies or mattersrelative to the article subject as a whole. Please help to create a more balanced presentation. Discuss and resolve this issue before removing this message. (January 2011) The term business cycle (or economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (anexpansion or boom), and periods of relative stagnation or decline (a contraction or recession).

Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity do not follow a mechanical or predictable periodic pattern.

The first systematic exposition of periodic economic crises, in opposition to the existing theory of economic equilibrium, was the 1819Nouveaux Principes d'économie politique by Jean Charles Léonard de Sismondi. cycles,
[3] [2]

Prior to that point classical economics had either denied the existence of business

blamed them on external factors, notably war,

or only studied the long term. Sismondi found

vindication in the Panic of 1825, which was the first unarguably internal economic crisis, occurring in peacetime. Sismondi and his contemporary Robert Owen, who expressed similar but less systematic thoughts in 1817 Report to the Committee of the Association for the Relief of the Manufacturing Poor, both identified the cause of economic cycles as overproduction and underconsumption, caused in particular by wealth inequality. They advocated government intervention and socialism, respectively, as the solution. This work did not generate interest among classical economists, though underconsumption

(iv) recovery (stocks recover because of the fall in prices and incomes). Sismondi's theory of periodic crises was developed into a theory of alternating cycles by Charles Dunoyer. Austrian economistJoseph Schumpeter argued that a Juglar cycle has four stages: (i) expansion (increase in production and prices. high interests rates). the Kuznets infrastructural investment cycle of 15–25 years (after Simon Kuznets). Periodic crises in capitalism formed the basis of the theory of Karl Marx. showing signs of influence by Sismondi. aggregate demand. In the mid-20th century. If the economy is operating with less than full . business cycles reflect the possibility that the economy may reach short-run equilibrium at levels below or above full employment. He devoted hundreds of pages of Das Kapital to crises. low interests rates). (iii) recession (drops in prices and in output. (ii) crisis (stock exchanges crash and multiple bankruptcies of firms occur). he predicted a communist revolution. French economist Clement Juglar identified the presence of economic cycles 8 to 11 years long. The main framework for explaining such fluctuations is Keynesian economics. the Kondratiev wave or long technological cycle of 45–60 years (after Nikolai Kondratiev). [edit]Classification by periods Economic Waves series (see Business cycles) Cycle/Wave Name Kitchin inventory Juglar fixed investment Years 3–5 7–11 15–25 45–60 In 1860. In the Keynesian view. were developed by Johann Karl Rodbertus. which gives little support to the idea of regular periodic cycles. who further claimed that these crises were increasing in severity and. although he was cautious not to claim any rigid regularity. and prices. [10] Explaining The explanation of fluctuations in aggregate economic activity is one of the primary concerns of macroeconomics. [9] Interest in these different typologies of cycles has waned since the development of modern macroeconomics. consumer confidence. on the basis of which. recovery and prosperity are associated with Kuznets infrastructural investment Kondratiev wave increases in productivity. In this model. so that a number of particular cycles were named after their discoverers or proposers:     the Kitchin inventory cycle of 3–5 years (after Joseph Kitchin). [6] Later.theory developed as a heterodox branch in economics until being systematized inKeynesian economics in the 1930s. [8] [7] the Juglar fixed investment cycle of 7–11 years (often identified as 'the' business cycle). [5] and similar theories. Schumpeter and others proposed a typology of business cycles according to their periodicity.

with high unemployment. This cycle is believed to be accounted for by time lags in information movements affecting the decision [1] making of commercial firms. etc. output. prices drop. Another relevant time lag is the lag between the materialization of the above mentioned decision (causing the capital assets to work well below the level of their full employment) and the decrease of the excessive amounts of commodities accumulated in inventories. prices. notably real business cycle theory and credit-based explanations such as debt deflation and the financial instability hypothesis. this process takes some time. [2] Juglar cycle From Wikipedia. As a result. There are also some divisions and alternative theories within mainstream economics. within a certain period of time (ranging between a few months and two years) the market gets ‘flooded’ with commodities whose quantity becomes gradually excessive.. Firms react to the improvement of commercial situation through the increase in output through the full employment of the extent fixed capital assets. which informs entrepreneurs of the necessity to reduce output. Keynesian theory states that monetary policy and fiscal policy can have a positive role to play in smoothing the fluctuations of the business cycle. after this decrease takes place one can observe the conditions for a new phase of growth of demand. largely associated with particular schools or theorists. Yet. It takes some time for the information that the supply exceeds significantly the demand to get to the businessmen.employment. some time is also necessary to materialize this decision (these are the time lags that generate the Kitchin cycles). the free encyclopedia Economic Waves series (see Business cycles) Cycle/Wave Name Years Kitchin inventory 3–5 . Kitchin cycle is a short business cycle of about 40 months discovered in the 1920s by Joseph Kitchin. However. Further it takes entrepreneurs some time to check this information and to make the decision to reduce production. The demand declines. There are a number of alternative heterodox economic theories of business cycles. i.e. the produced commodities get accumulated in inventories.

[3] Howrey claimed that the apparent business cycle found by Kuznets was an artifact of the filter Kuznets used. The recent research employing spectral analysis has Juglar fixed investment 7–11 Kuznets infrastructural investment 15–25 Kondratiev wave 45–60 confirmed the presence of Juglar cycles in the world GDP dynamics up to the present time. a more recent spectrum analysis has confirmed the presence of the Kuznets swings in the world GDP dynamics even without the application of the Kuznets filter. [2] Kuznets swing From Wikipedia. the free encyclopedia Jump to: navigation. search Kuznets swing is a claimed medium-range economic wave with a period of 15–25 years found in 1930 by Simon Kuznets. in particular with immigrant inflows/outflows and the changes in construction intensity that they caused. the free encyclopedia .[4] However. Within the Juglar cycle one can observe oscillations of investments into fixed capital and not just changes in the level of employment of the fixed capital (and respective changes in inventories). as is observed with respect to Kitchin cycles.[2] Economic Waves series (see Business cycles) Cycle/Wave Name Kitchin inventory Juglar fixed investment Years 3–5 7–11 Kuznets infrastructural investment 15–25 Kondratiev wave 45–60 Kuznet's finding was debunked by Howrey (1968).In 1862 Clement Juglar identified the 7-11 year fixed investment cycle [1] that is now associated with his name. Kuznets swings have been also interpreted as infrastructural investment cycles.[1] Kuznets connected these waves with demographic processes. Howrey suggested that the same cyclical pattern could be found inwhite noise series when the Kuznets filter was applied.[5] Kondratiev wave From Wikipedia. that is why he denoted them as “demographic” or “building”cycles/swings.

the cyclesconsist of alternating periods between high sectoral growth and periods of relatively slow growth.Kondratiev waves (also called supercycles. the long wave of this theory is not accepted by current mainstream economics. great surges. K-waves or the long economic cycle) are described as sinusoidal-like cycles in the modern capitalist world economy. Unlike the shortterm business cycle.[1] Averaging fifty and ranging from approximately forty to sixty years in length. long waves. Economic Waves series (see Business cycles) Cycle/Wave Name Years Kitchin inventory 3–5 Juglar fixed investment 7–11 Kuznets infrastructural investment 15–25 Kondratiev wave 45–60 .