The steady growth line in Figure 2 depicts the expansion of the economy when there are no business cycles. Contrarily, the line of cycle displays the business cycles that oscillate above and below the line of steady growth. Below are descriptions of each stage of a business cycle, as depicted in Figure 2.
The expansion phase’s growth eventually slows and reaches its peak. This phase is known as peak phase. In other words, peak phase refers to the period of time when the business cycle’s rate of increase reaches its maximum level. Economic factors like production, profit, sales, and employment are higher during the peak phase but do not rise further. As a result of rising input costs during the peak period, there is a gradual decline in demand for a variety of products.
While the average person’s income does not change as a result of the rise in input costs, the prices of final goods do. This also leads consumers to restructure their monthly budget. The demand for goods such as jewelry, houses, cars, refrigerators, and other durables begins to decline as a result.
Initially, this situation is thought to be a minor market fluctuation, but as it persists for a longer period of time, producers begin to notice it. As a result, producers refrain from making any new investments in factors of production like labor, machinery, and furniture. This results in a decline in factor prices, which in turn causes a decrease in the demand for inputs and output.
In addition to this, a country’s economic output level declines and its unemployment rate rises. Additionally, investors avoid stock markets during the trough phase. Many weak organizations leave industries during the downturn or instead disintegrate. An economy reaches its lowest point of contraction at this point.
Additionally, bankers begin using their accumulated cash balances during the recovery phase by lowering lending rates and increasing investment in a variety of securities and bonds. Similar to how other private investors start investing in the stock market by taking a proactive stance, security prices rise and interest rates fall as a result.
As a result, producers can always expect to make a certain profit, which rises during the trough stage. The increase in profit also continues in the recovery phase. In addition, during the recovery phase, producers replace some of the depreciated capital goods and maintain others. As a result, investment and employment by organizations increases. An economy again enters the phase of expansion as this process picks up speed. Thus, a business cycle gets completed.
Phases of the business cycle
Each stage of the business cycle has distinct traits, and each cycle will have a different impact on the economy. Several factors, such as employment rates, stock market prices, and consumer spending patterns, can be used to track changes in the business cycle’s phases.
The cycle starts with the economy expanding, then it peaks and can no longer grow, then it contracts, and finally it reaches a point where it can no longer contract. The four phases and how to determine which phase your economy may be in are explained in more detail below:
Expansion phase
When the economy improves, the business cycle’s first phase starts. People are more likely to have and spend more money when the economy is expanding. As businesses expand, they either hire more people or look for new market opportunities. An expanding economy often has some of the following benefits:
Peak phase
When a nation’s economy reaches a certain size, it can no longer continue to grow. The peak of this phase occurs when the economy stops growing and either stabilizes for a while or begins to contract. You might notice some of the following signs before a peak phase starts:
Contraction phase
When the economy reaches its peak, it starts to contract and enters the business cycle’s contraction phase. Companies look for ways to cut costs during this phase, which results in a decline in the GDP of the nation. An economy in contraction typically has:
Trough phase
Thankfully, the economy doesnt contract forever. The trough phase starts once the economy hits its lowest point. The trough starts when the economy stops declining and either stays at the same level for a while or starts to improve, and it can be thought of as the opposite of the peak phase. Some signs of the trough phase include:
What is the business cycle?
The pattern of alterations in an economy over time is known as the business cycle. Researchers can use this data to determine when a nation’s economy transitions to a different phase in the business cycle by examining the growth or contraction of a country’s gross domestic product (GDP), which depends on the phase its economy is in. The business cycle phases can be impacted by a nation’s leaders by enacting new legislation or amending already-existing ones. The business cycle may also be impacted by external factors like natural disasters or changes in the cost of imports.
The economy will go back to the first phase and restart the cycle once it has completed the four phases of the business cycle. The phases are expansion, peak, growth and trough.
How does the business cycle affect the hiring process?
Companies will have different expectations for applicants as the economy experiences growth, a trough, and then another period of growth. Companies might feel more comfortable hiring someone with less experience or a background in a different industry when the economy is doing better. Instead, during a downturn in the economy, employers may decide to give current staff members new responsibilities or search for candidates who need less training. Understanding what a potential employer might need will help you demonstrate why you would make an excellent employee.
How to find a job during each phase of the business cycle
Companies’ needs vary depending on the stage of the business cycle. When the economy is expanding, a business will require more staff members who are eager to help it grow and attract new clients or develop novel products. However, a business might not have the resources to grow or innovate when the economy is in recession.
For any job search, understanding what a company needs at a specific point in the business cycle is essential. You can demonstrate to potential employers that you can assist them in achieving their objectives at every stage of the business cycle by doing the following:
Job-hunting during an expansion phase
Companies look for more employees during this phase. Employers may be more willing to offer future workers higher salaries or better benefits because they need more people to meet their expanding business needs. During interviews, you might want to discuss how you could contribute to the company’s expansion and share examples of how your suggestions have aided any prior employers in growing or innovating.
This stage would be the ideal time to search for a position in a different industry or one that might challenge you. Your resume can be improved by learning new skills that new experiences can teach you or by offering you a more exciting career. During this time, you might find it easier to find a new job. As you get ready for any interviews, you might want to think about learning how to bargain for a higher starting salary.
Job-hunting during a peak phase
You might want to concentrate on locating a job during this stage that will endure an economic downturn. Continue negotiating for a substantial starting salary, and seek out businesses that have experienced steady growth. Look for positions in your industry where your experience aligns with what the employer needs at this time.
Mention this in interviews or in your cover letter if you have experience retaining customers or helping a company improve its daily operations. When the economy slows, businesses might be more interested in someone who will maintain their position.
Job-hunting during a contraction phase
The contraction phase is a fantastic time to develop your abilities. Look for credentials or programs that are in demand right now, and try to grow your professional network.
During this phase of your job search, you should demonstrate to potential employers your value as a member of their team. Practice interview techniques, and review your resume to make sure it highlights all of your pertinent qualifications. Be persistent, and consider applying for positions you might not typically consider.
During an interview or job application, now might be the ideal time to bring up your prior experience with cutting costs or expediting particular tasks. Try to demonstrate to businesses how you can contribute to their efforts to cut costs as a potential employee.
Job-hunting during a trough phase
During this phase, think about looking into part-time or temporary jobs to help you reach the next growth phase. Consider looking into side projects or gigs that you can complete in your downtime between job applications and interviews at this time. You might even discover that you enjoy these side gigs once the economy starts to pick up enough to keep doing them throughout the other business cycle phases.
You may notice that more people than ever are looking for work during this time. Consider teaming up with someone you know who is also applying for new jobs to practice your interviewing techniques and look over each other’s resumes and cover letters. You might even be able to exchange advice and find out about new chances.
Business Cycle Phases
FAQ
What are the 4 phases of business cycle?
The cycle is divided into four phases: expansion, peak, contraction, and trough. The current stage of the economic cycle can be determined by variables like GDP, interest rates, total employment, and consumer spending. Businesses and investors can benefit greatly from understanding economic cycles.
What is business cycle What are its phases?
The economy experiences phases in a business cycle such as expansion, peak economic growth, reversal, recession, and depression, ultimately resulting in a new cycle. Getty Images The point at which the growth rate reaches its maximum signifies a change in the direction of economic growth.
What are the 4 phases of the business cycle quizlet?
The business cycle has four stages: peak, recession, trough, and expansion.
