What Are Primary Phases Of The Business Cycle?

What are primary phases of the business cycle How does inflation affect the economys level of real output A business cycle refers to the up and down movements in economic activities as measured by fluctuations in real GDP. There are four primary phases of a business cycle the first is the expansion phase, which is characterized by rapid growth, speed up of economic activities, low levels of unemployment and rising prices. The second phase is the peak, which marks the turning point of the business cycle from expansion to contraction. The third phase is the contraction phase, which is marked by a slowdown in economic activities, stagnationor low growth, declining prices, and rising levels of unemployment. The fourth phase is the trough this phase is the lowest turning point in which contraction turns to expansion. This phase is also referred to as the recovery phase. All together, the four phases are known as the boom-to-bust cycle (McConnell, Brue, Flynn, 2008). Inflation erodes the value of money, thereby increasing the opportunity cost of holding interest bearing money. This acts as an incentive to invest money in productive assets thereby increasing an economys level of real output (McConnell, Brue, Flynn, 2008). Reference