4 Stages of the Business Cycle
4 Stages of the Business Cycle

No other research that I will do in the remaining weeks of the year to be as exciting as interrogating the four stages of the business cycle. What are the 4 stages of the business cycle? There is so much material around the business cycle as a phenomenon. I mean, I cannot keep this excitement all to myself, so let’s do what we always do. As usual, we do not rush into interaction with what are the 4 stages of the business cycle without knocking at the door of the definition of The Business Cycle, and the phases of the business cycle. Anywhere in the world, but especially USA, India, Canada, or the UK knowing the stages of the Business cycle is very important.

Now that I have your attention, it will excite you to find out that the Business cycle is an intriguing phenomenon in itself. To start, it is also known as the “economic cycle” or “boom-bust cycle.” It also, “refers to economy-wide fluctuations in production, trade, and general economic activity.” This shows that it is a cycle that feeds from an entire economy, not just a particular business entity. It is important to understand these aspects at a larger scale coming down to your business. If you treat yours like an economy, I do not need to explain the smiles that will follow.

According to Lumen, “From a conceptual perspective, the business cycle is the upward and downward movements of levels of GDP (gross domestic product) and refers to the period of expansions and contractions in the level of economic activities (business fluctuations) around a long-term growth trend.”

The 4 Stages of The Business Cycle

The business cycle has four ‘distinct’ phases, which we are responding to its stages in this article. What are the 4 stages of the business cycle, these include expansion, peak, contraction, and trough? Let us undress them phase by phase as we further explain what are the 4 stages of the business cycle?

1. Expansion

This is when business growth is realized at visible intervals. This upward trend in the business cycle is responsible for factors like employment increase, economic growth, and upward pressure on prices. The upward pressure on prices is a result of an increase in production and employment, it’s the first step on the phases of business cycle, which subsequently results in an increase in the incomes and spending of households and businesses.

At this point, business owners and the decision-makers in economies should put to good use the excess produce and revenue obtained during this stage of the cycle. It has been established enough times that businesses reach their peak and contraction follows. In any setting, government or corporate world, contraction is the most excruciating phase in the cycle and the only way it can be endured better is through a well-managed reserve of spoils from the expansion phase.

2. Peak

Illustrations through diagrams will draw a vivid picture of how your business performances resonate with the four stages of the business cycle, especially when seeking to define the peak. This is the highest point between phases of the business cycle, the end of growth in a business or economy which is usually called expansion, and the beginning of contraction or the decline.

The peak is characterized by maximum production by the economy or business, allowable output, adequate employment distribution, and inflationary pressures on prices.

The unfortunate reality is most people do not realize when the business has reached its peak. Maybe because they are busy enjoying excess revenue thinking, “Nothing can stop us now.” I think the reason why contraction phases of the business cycle have not yet been managed is economies and businesses splashing resources instead of preparing for a rainy day.

3. Contraction

This begins when a business reaches a peak where it can not grow beyond what it is. Here the business or economy begins to dwindle and this is the definition of contraction as a stage in the business cycle. There is a great reduction in the speed of growth and production. As a result of these challenges employment declines, and pricing pressures step aside.

As I mentioned earlier, businesses and economies do not necessarily have to endure the pains of the contraction phase. Ways to mitigate the unbearable pain of unemployment among other consequences that come with contraction. Maybe contraction can not be avoided but I strongly stand with the point that its impact can be minimized by exercising due diligence during expansion.

4. Trough

The trough is the opposite of the peak meaning it is the lowest point a business or economy can ever reach. This is the point at which the dwindling stops and the slowing stop here. A new cycle begins, where expansion is realized once again.

Businesses should never make the gross mistake of being rational about this cycle. Monitoring and evaluation should be a key component during the cycle until we reach the trough. At this point, we need to restrategize and come up with new initiatives that will not see us reaching contraction too quickly.

Now that we have established the four stages of the business cycle, my appeal is to emerging entrepreneurs to study well the business cycle before setting up and during the process of running a business. It is a concept every company should closely monitor as it ultimately decides the fate of your business as far as growth and everything that comes with it is concerned.

Well, it is quite different in politics. Before we even speak of the difference in policies of political parties that exchange leadership from time to time, Leaders within the same political institution have different views. Therefore it is difficult to have a regular system that is followed by every government that garners power.

However, it is important to single out that, “business cycle fluctuations occur around a long-term growth trend and are usually measured by considering the growth rate of real gross domestic product.” Before I sign out you may be interested in knowing where the name “boom-bust cycle” came from. Well, boom simply refers to expansion.

It is a term derived from capitalist economies and during booming growth, its explained expansion is realized. The subsequent is the bust which is a contraction as we know it. This name tends to point us to the fact that two of the cycle’s stages (expansion and contraction) are worth more attention than the others when dealing with What are the phases of the business cycle. To an extent, this is true because these are usually longer periods than the other two stages.

Read Similar Content