Economic cycle

Stages or phases that a changing economy goes through.

What is the economic cycle?

An economic cycle comprises the stages or phases that an economy goes through where a series of changes occur, following a specific order and passing through periods of prosperity, recession, and depression.

This phenomenon, also known as cyclical fluctuations or business cycles, contributes to economic activities since it allows knowing the changes that occur during its course and what measures can be taken into account to face the problems that arise in the future.

Characteristics of the economic cycle

The main characteristics of the economic cycle are the following:

• The economic cycle has a wave movement, that is, it alternates between phases that go from expansion to depression, increasing and decreasing economic activity.
• It has a certain duration, which is determined according to the type of economic cycle that takes place at that time.
• Prices and production are affected depending on the stage of the business cycle.
• They are useful to know the causes and solutions to the different problems of an economy.

Phases of the economic cycle

The phases or stages of an economic cycle are the following:

1. Expansion: During expansion or prosperity, the greatest growth in economic activity is recorded. In this, the economic boom is reached, the highest point of the cycle.
2. Recession: After the expansion, economic activity declines. This occurs in a short space of time and there the forces of production suffer a contraction. Consumption is reduced and unemployment increases, which can lead to an economic crisis or depression.
3. Depression: It is one of the lowest points of an economic cycle. It occurs when the recession phase lasts for a long time. Here production and consumption are minimal.
4. Recovery: economic activity begins to stabilize, increases production, wages and consumption. It leads to a stage of expansion that initiates a new economic cycle.

Components of the economic cycle

An economic cycle is made up of the following elements:

• Periodicity: economic series that do not allow growth and decline to occur in parallel, causing the detention of the norms of economic activity.
• Duration:  duration of an economic cycle. This is determined according to the type of economic cycle that takes place at that time.
• Amplitude: determines the size that the economic cycle will have, according to the economic setbacks that occur.
• Recurrence: predicts when an economic cycle will repeat itself.
• Form: determines the different variations that occur in an economic cycle, showing what it is made of and the positive or negative changes that occur.

Types of economic cycles

The types of economic cycles are divided as follows:

• Kitchin or short cycles: those economic cycles that usually last 40 months or less.
• Minstrel cycles or great: those that happen when there are successive crises and economic activity is changing. These have a duration of 7 to 11 years.
• Kondratieff cycle or long-wave: those cycles that have a duration of approximately 50 years.

 

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