Content

  1. Business Cycle
    1. Business
    2. Business Planning
    3. NBER
  2. Stages of Business Cycle 
    1. Growth
    2. Peak
    3. Recession
    4. Trough
  3. Significance of  Business cycle
    1. Employment
    2. Consumer Demand
    3. Persisting Business Cycles
    4. Business Expansion & Contraction in the Business Cycle

Business Cycle

The business cycle is said to be the downward and upward movement of gross domestic product around its long-term growth movement. Thus it is also called as the economic cycle or trade cycle.  The time from one commercial ultimate to the next, or one declining channel to the next, is considered a business cycle.  The length of a business cycle is the period of time containing a single boom and slimming down in sequence. Business cycles are significant since they can have emotional impact towards profitability, which in due course defines the business success.


Business

The word “business” is referred as to the systematized efforts and activities of individuals to produce and sell goods and services for profit. Therefore business is defined as an organization or enterprising entity or occupation or trade engaged in commercial, industrial, or professional activities in purchase and sale of products or services to make a profit. 

Business Planning

Business planning usually go around decisions related to the specific markets in which a company drives whereas economy wide movements can have a significant impact on all businesses. The business cycle is a design of commercial reports and searches showed by the modern economy. 


NBER

The National Bureau of Economic Research is an American private non-profit research organization “dedicated to task and broadcasting neutral economic research among public policymakers, business professionals, and the academic community from 1945 to till date.


Stages of Business Cycle 

The business cycle is made up for four stages: booms, downturns, recessions and recoveries. 

  • When the economic output increases quickly and businesses tend to flourish is called boom stage.
  • Sooner or later a booming economy reaches next level of development called peak point 
  • Economic downturn arise, when the economic growth rates start to fall
  • Downturns lead to economic inactivity phases or decline called recessions. 
  • The point at which economic growth rates begin to increase again is called the economic recovery which follows the learning channel and leads back into an economic boom.

Growth

We can see growth foremost leads to an expansion of the business when customers start placing more orders. At this part of the business cycle the commercial economy is benefited with characterized factors such as increasing consumer confidence, dropping unemployment rates, increasing disposable income and low inflation which ultimately increase the economic world. Thus it is proved that a good strategy for your business during this part of the cycle is to build on business strengths and reduce weaknesses.

 

Peak

We can see increased inflationary pressures as demand outshines the supply capacity of businesses. At this point the interest rates tend to rise. Higher prices from inflation reduce demand and the growth of economic activity slows, here, the business can react by combining expansion and gains made during the growth period to prepare for a possible recession. 


Recession

When demand starts decreasing, we can see fewer orders from customers and we buy fewer supplies for our production. At this point the business strategy must be to cut costs and avoid spending as profits drop due to decreasing business volume.

 

Trough

After a period of recession, businesses have cut costs and are able to lower prices. Lack of demand reduces inflation and interest rates tend to decrease. Here, another period of growth with corresponding business expansion follows and completes the business cycle.

Significance of Business cycle

A business cycle will impact on all the sectors of an economy right from demand to supply to the cost of production every aspect will depend on the phase of the business cycle thus it will also affect all sectors of a firm. So the well founded firm must be capable to identify correctly its present phase in the cycle.

The upward and downward movements of heights of GDP – gross domestic product is the theoretical outlook of the Business cycle and moreover the period of expansions and contractions in the level of economic activities or business fluctuations around a long-term growth trend is referred as commercial phases

Employment

During periods of economic growth and prosperity, the business cycle has a major effect on the total level of employment in the economy. The employment tends to be high when the businesses need more workers to meet demand and expand their companies.

Consumer Demand

High levels of unemployment and underemployment which means customers have less cash to spend on products and services, which be likely to reduce consumer demand towards the product. The low consumer demand indicates lower sales for businesses, which diminishes profits and increases the chances of suffering losses. So consumer demand is said to be the primary reason for business cycle.

Persisting Business Cycles

During economic recoveries and booms, circumstances are carrying out new businesses to enter in to the market, also downturns and recessions normally result in a winding up of weak businesses. Therefore, overwhelming economic downs and recessions is one of the prime challenges of sustaining a business in the long term period which involves cutting costs, increasing efficiency and portrayal on resources saved during periods of fortune.

 

Business Expansion & Contraction in the Business Cycle

Whatever the business might be, once it has been organised, then should be self-equipped for expansion or contraction in response to the business cycle.  Customer demand grows during booms and diminishes during recessions, which results in business expansion or contraction. Therefore economists suggest different theories for changing demand in the market.  Everyone believe that the business cycles in universal has the feature of the economy such as developing strategies to exploit expansions and survive contractions.

About the Author

BankReed Admin

Banking Professional with 16 Years of Experience. The idea to start this Blogging Site is to Create Awareness about the Banking and Financial Services.

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