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By: Hammad • Essay • 401 Words • May 23, 2010 • 923 Views
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The repeated sequence of economic expansion giving way to temporary decline followed by recovery is known as the business cycle. A business cycle consists of a period of declining aggregate economic activity (a contraction or recession) followed by a period of rising economic activity (an expansion or a boom). The low point of the contraction is called the trough and the high point of the expansion is called the peak. Business cycles have been observed in market economies since the beginning of industrialization. The tendency of many economic variables to move together in regular and predictable ways over the course of the cycle is called comovement. We refer to the typical cyclical patterns of key macroeconomic variables as the "business cycle facts." The fluctuations in aggregate economic activity that constitute business cycles are recurrent, having been observed again and again in industrialized market economies. However, they aren't periodic, in that they don't occur at regular or predictable intervals. Business cycle fluctuations also are persistent, which means that once a recession or expansion begins, it usually lasts for a while.
The direction of a variable relative to the business cycle can be procyclical, countercyclical, or acyclical. A procyclical variable moves in the same direction as aggregate economic activity, rising in booms and falling in recessions. A countercyclical variable moves in the opposite direction to aggregate economic activity, falling in booms and rising in recessions. An acyclical variable has no clear cyclical pattern.