Business Cycles – Meaning & Characteristics

Economies do not grow in a straight line. Output, income and employment show ups and downs called business cycles.

1. Meaning of Business Cycle

Business cycle refers to the recurring fluctuations in the level of economic activity – such as output, income, employment – over time, consisting of periods of expansion (boom) and contraction (recession/depression).

2. Main Characteristics

1. Wave-like movement – alternating phases of expansion and contraction.
2. Broad-based – affects many sectors of economy.
3. Recurrent but not periodic – cycles repeat but do not follow fixed time interval.
4. Cumulative – expansion tends to feed on itself; so does contraction.
5. Associated with changes in employment, income, profits, prices.

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3. Why Business Cycles Matter to Firms

• Influence sales, profits, investment decisions.
• Affect employment and wage policies.
• Guide inventory management (stock more in boom, cautious in slowdown).

4. Quick Revision Points

• Business cycle = recurrent ups and downs in economic activity.
• Main characteristics: wave-like, recurrent, broad-based, cumulative.
• Very important for planning in business and government.

5. Quiz Time 🎯

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