As per Investopedia, “The term economic cycle refers to the fluctuations of the economy between periods of expansion (growth) and contraction (recession) in market-driven economies.“
Factors such as gross domestic product (GDP), interest rates, total employment, and consumer spending are some of the key economic indicators used in the analysis of the economic cycle.
Simply put, over a period of time the economy goes through different stages between Expansion and Contraction in a cyclical pattern. The different schools of economics define various reasons for the causes of the cycle. The Keynesian approach believes that the economic cycles are a virtue of volatility in investment demand, on the other hand, the Monetarists tie the economic cycle to the credit cycle in which the interest rates affect the price of debt and influence consumer spending and economic activity.
The economic cycle that is also known as the business cycle has 4 different stages:
Knowledge of economic cycles and their characteristics serves as the starting point for top-down financial analysis and aids in decision making for businesses, investors, and governments by enabling them to assess the state of the economy.
- Corporate Finance Institute
- Business Insider