<ul><li class="ql-align-justify">These cycles affect jobs, prices, incomes and investments.</li><li class="ql-align-justify">Governments and central banks montor them to apply fiscal or monetary policies at the right time.</li><li class="ql-align-justify">Understanding the cycle helps predict risks and plan long-term.</li></ul>

Why the Cycle matters

Characteristics:<ul><li class="ql-align-justify">Rising GDP</li><li class="ql-align-justify">Low unemployment</li><li class="ql-align-justify">Increasing consumer confidence</li></ul>Causes:<ul><li class="ql-align-justify">Low interest rates</li><li class="ql-align-justify">Strong demand and investment</li></ul>Aftermath:<ul><li class="ql-align-justify">Inflation may rise</li><li class="ql-align-justify">Economy approaches its peak</li></ul>

Phase 1: Expansion

"A recession is when your neighbor loses his job. A depression is when you lose yours."

Recession:<ul><li class="ql-align-justify">Duration: Months</li><li class="ql-align-justify">Decline: moderate</li><li class="ql-align-justify">Recovery: relatively fast</li><li class="ql-align-justify">Rarity: happens regularly</li></ul>Depression:<ul><li class="ql-align-justify">Duration: Years</li><li class="ql-align-justify">Decline: extreme</li><li class="ql-align-justify">Recovery: very slow, often painful</li><li class="ql-align-justify">Rarity: Rare, historically significant</li></ul>

Key Differences

A recession is a short-term economic decline (often 2+ quaters of negative GDP).<ul><li class="ql-align-justify">Common symptoms: lower spending, job losses, reduced production.</li></ul>A depression is far more severe and long-lasting.<ul><li class="ql-align-justify">The Great Depression (1930s) is the most famous example.</li></ul>

Recession vs. Depression

<ul><li class="ql-align-justify">Economies naturally move through repeating phases of growth and decline.</li><li class="ql-align-justify">This pattern is called the economic or business cycle, and includes:</li></ul><ol><li class="ql-align-justify">Expansion - economic growth</li><li class="ql-align-justify">Peak - highest potential</li><li class="ql-align-justify">Contraction - slowdown</li><li class="ql-align-justify">Trough - least potential</li></ol>

The Economic Cycle

Characteristics:<ul><li class="ql-align-justify">Falling GDP</li><li class="ql-align-justify">Rising unemployment</li><li class="ql-align-justify">Decreased spending and production</li></ul>Causes: <ul><li class="ql-align-justify">High interest rates</li><li class="ql-align-justify">External shocks or loss of confidence</li></ul>Aftermath:<ul><li class="ql-align-justify">Business closures</li><li class="ql-align-justify">Pressure for policy intervention</li></ul>

Phase 3: Contraction

Economies rise and fall — that’s normal.But knowing the difference between a temporary recession and a deep depression helps us understand how serious a downturn really is — and what kind of response is needed.Recessions are quite short and not that severe, while Depressions are long-term and often shaking the whole economy.

Takeaway

Characteristics:<ul><li class="ql-align-justify">Economy hits bottom</li><li class="ql-align-justify">High unemployment</li><li class="ql-align-justify">Low inflation or deflation</li></ul>Causes:<ul><li class="ql-align-justify">Stabilazitaion policies take effect</li><li class="ql-align-justify">Market forces reset</li></ul>Aftermath:<ul><li class="ql-align-justify">Economy begins to recover</li><li class="ql-align-justify">Sets stage for next expansion</li></ul>

Phase 4: Trough

Characteristics:<ul><li class="ql-align-justify">Economy hits its highest output level</li><li class="ql-align-justify">Inflation often high</li><li class="ql-align-justify">Labor market tight</li></ul>Causes:<ul><li class="ql-align-justify">Overheating economy, excessive demand</li></ul>Aftermath:<ul><li class="ql-align-justify">Growth slows</li><li class="ql-align-justify">Tipping point toward contraction</li></ul>

Phase 2: Peak

In this post I want to bring you closer to the different phases of the economic/business cycle. I will try to keep things simple and easy so you guys can understand the concept and see it in current or past developments.