What is a business cycle? Definition, phases, and effects - Business Insider

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Business cycles chart the ups and downs of an economy, and understanding them can lead to better financial decisions

NBER primarily uses quarterly GDP growth rates to identify a business cycle, but it will also look at other economic indicators, such as real income, retail revenues, employment, and manufacturing output. Analysts and economists often see what they call "co-movement" in these variables, meaning the different measurements rise and fall together.

The many variables in an economy fluctuate differently over time, causing shifts in the economy, and non-economic factors, such as natural disasters and disease, play a part in shaping the economy as well. "Essentially, market economies want to expand, but if they're hit by an adverse shock, they may contract," says Vincent Reinhart, chief economist and macro strategist at Mellon Investments.

Similarly, a central bank — like the Federal Reserve in the US — will use an expansionary monetary policy to end a contractionary period by reducing interest rates, which makes borrowing money cheaper, thus stimulating spending, and eventually the economy.

 

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The chart says we're screwed

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