Phases of the Business Cycle

The business cycle describes the natural fluctuations in economic activity over time, typically including four phases: expansion, peak, contraction, and trough. During expansion, the economy grows, unemployment decreases, and businesses invest more. The peak is the highest point of economic activity before growth slows. Contraction, or a recession, involves declining economic output, rising unemployment, and less spending. The trough is the lowest point, where activity begins to stabilize before the cycle repeats with another expansion. These phases reflect the ebbs and flows of economic health, impacting jobs, investments, and overall prosperity.