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MENTAL MODEL · M1457

Business Cycle

Business Cycle
BusinessHigh supportMacroeconomics
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Version 1.0.0 · Updated 2026-07-28

CORE DEFINITION

The business cycle (also known as economic cycle or trade cycle) refers to the upward and downward movements of gross domestic product (GDP) around its long-term growth trend. The length of a business cycle is the period that includes one boom and one contraction. These fluctuations typically involve changes between periods of relatively rapid economic growth (expansion or boom) and periods of relative stagnation or decline (contraction or recession). The business cycle is usually measured by the growth rate of real GDP. Despite the name "cycle," these fluctuations in economic activity do not exhibit uniformity or predictable periodicity. Current mainstream economic thought holds that the business cycle is essentially the sum of purely random shocks to the economy, and therefore, although it appears to be, it is not actually a cycle. However, some schools of thought propose alternative theories suggesting that cycles do exist due to endogenous causes.

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The business cycle (also known as economic cycle or trade cycle) refers to the upward and downward movements of gross domestic product (GDP) around its long-term growth trend. The length of a business cycle is the period that includes one boom and one contraction. These fluctuations typically involve changes between periods of relatively rapid economic growth (expansion or boom) and periods of relative stagnation or decline (contraction or recession). The business cycle is usually measured by the growth rate of real GDP.

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The business cycle is the alternating expansion and contraction of economic activity around a long-term trend, typically divided into four phases: boom, recession, depression, and recovery. It is driven by multiple factors such as investment, consumption, money, and technology shocks.

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Source support: Explicit

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