What is meant by the business cycle?

The business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It typically includes phases such as expansion, peak, contraction, and trough. During the expansion phase, economic activity increases, leading to higher employment and production levels. Conversely, during contractions or recessions, economic activity declines, resulting in lower employment and decreased production.

Understanding the business cycle is crucial for businesses and policymakers as it helps them to make informed decisions regarding investments, hiring, and economic policy. This cyclical nature of economic activity reflects changes in consumer demand, business investment, and overall economic conditions, making it an essential concept in economics.