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Economic growth is not a constant phenomenon that relies on some fixed variables, rather it depicts a variable pattern, that is given below:
An increase of the above average growth The high point- peak A decrease of the below average growth The trough- low point
When the economic growth reaches the trough, it is then followed by an increase or expansion, and then the cycle repeats albeit not in a regular or constant manner. The business cycle refers to these fluctuations in the economic growth. To understand this phenomenon, see the diagram below:
The Indicators of Business Cycle: Aggregate economic activity is related to the business cycle. Because of this reason, one of the most popular indicators of business cycle in United States is Gross Domestic Product (GDP). Generally, two consecutive quarters with negative GDP growth are considered by financial media for indication of a recession period. For this purpose GDP is often used as a simple and quick indicator of economic contractions. The National Bureau of Economic Research (NBER) considers GDP to be relatively less accurate as a primary indicator of the business cycle. The main reason for this is the fact that GDP is frequently revised and then is reported on quarterly basis (whereas the business cycle is analyzed on monthly basis). However, the indicators that NBER considers primary are as follows:
Industrial production Employment Personal income Page 1
The Prominent Historic Business Cycle Expansions and Contractions: According to the National Bureau of Economic Research (NBER), in the history of United States the longest economic expansion was started in March 1991 which continued to March 2001, covering a total time period of 10 years. Whereas, the longest recession period was recorded from October, 1873 till March, 1879, expanding to a total of 65 months of contraction period. If compared, the contraction that followed the Great Depression lasted for a period of 43 months, which started from August, 1929 till March, 1933. The Intensity of Business Cycle over Time: Economists are of the opinion that the magnitude of contractions in the recent times has shown a tendency to diminish. The other opinion which exists, points to the unreliability of data before 1929, citing the general tendency of reporters and analysts to overstate the economic conditions. It is debatable that the business cycles have become less severe as well as prolonged. The United States’ government took steps to ensure that the business cycle be restrained after World War II.
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