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Business Cycle

Essay by   •  June 1, 2011  •  677 Words (3 Pages)  •  1,036 Views

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The business cycle is the periodic but irregular up and down movements in economic activity measured by fluctuations in real Gross Domestic Product and other macroeconomic variables. A business cycle is not a regular, predictable, or repeating phenomenon. Its timing is random and unpredictable. A business cycle is identified as having a sequence of four phases. These phases are contraction, trough, expansion, and peak. Contraction is a slowing down of the pace in economic activity. Trough is the lower turning point of a business cycle, where a contraction turns into an expansion. An expansion is a speeding up of the pace in economic activity. Peak is the upper turning of a business cycle. An economic recession occurs if a contraction is severe enough.

The cycle extends from a Gross Domestic Product base line through one rise and one decline, and then back to the base line. This period typically averages about twenty one and a half years. This fluctuating was once thought to be a predictable and regular process. However, studies have now shown that this cycle is much more random than it is regular. At the moment the United States is in the recession stage of the business cycle.

Some companies experience economic growth no matter how well or poorly the economy is doing at any time. This type of company is known as a non-cyclical company because the company continues to make profits no matter what is happening to the business cycle. Businesses that fall into this category are companies that provide goods and services to satisfy people's actual needs. These needs include food, water, and power. Cyclical companies are companies that are greatly affected by the status of the economy. Cyclical companies will grow if the economy is doing well, and their business will decrease if the economy is doing poorly. These companies usually supply goods and services that are not necessities. These are luxury items such as designer clothing, expensive restaurants, fancy cars, and maid service. Each of these items and services are not necessary for everyday life. They will only be consumed if the economy is doing well and people have extra money to purchase them.

Verizon Communications Incorporated is both a cyclical and a non-cyclical company. It is a cyclical company because of all the luxury and entertainment products that it provides. They make



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