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 containing a single boom and slimming down in sequence. Business cycles are significant since they can have an emotional impact on profitability, which in due course defines business success.
The National Bureau of Economic Research is an American private non-profit research organization “dedicated to the 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 of four stages: booms, downturns, recessions, and recoveries. When the economic output increases quickly and businesses tend to flourish is called the boom stage. Sooner or later a booming economy reaches the next level of development called peak point.
Growth –. 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.
Peak – 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 – 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 can 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
Employment- 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 mean customers have less cash to spend on products and services, which be likely to reduce consumer demand towards the product.
Persisting Business Cycles- Overwhelming economic downs and recessions are one of the prime challenges of sustaining a business in the long term period which involves cutting costs, increasing efficiency, and portrayal of resources saved during periods of fortune.
Business Expansion & Contraction in the Business Cycle – Whatever the business might be, once it has been organized, 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.
Hope this article explains in details the various stages of business cycles and how it helps to attain success.