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Life is full of cycles. A cycle can be compared to a circle because it means to go through a process and return to the starting point to begin again.

Water goes from steam to liquid to solid and back to steam.

Insects go through cycles as they grow. The next cycle in an insect's life begins when the insect itself dies.

You go through cycles at school - from the beginning of school in the fall, through terms, to the end of school and back again in the fall.

Our economy goes through cycles also.

The business cycle is the constant movement of the GNP around its trend in a series of ups and downs.

Daily and hourly, business conditions change.

These business changes may be caused by climate, weather, natural resources, people, population, stock market changes, government decisions, and even what is happening in other countries.

As one thing changes, it brings about a number of changes - like a chain reaction.

Changes brought about by natural disasters - hurricanes, tornadoes, snow storms, earthquakes, and floods - are easy to notice because they are reported in the news.

Everyone begins to see immediate changes as a result of a natural disaster.

There is an immediate need for housing, food, safe drinking water, medical supplies, clothing, money to rebuild, etc.

Any change which affects a lot of people brings about a change in an economic cycle.

Business and economic conditions are always changing.

Let's look at a graph that will help illustrate these economic changes, or business cycles.

There are four phases to a business cycle:

1. expansion - A period of time when the overall economic conditions are improving; more people working and more goods being produced.
2. peak - The point where the economic conditions are all operating at almost 100% of employment and production capacity.
3. recession - A period of time when the amount produced is going down, there are fewer jobs, unemployment is rising, and money is not as plentiful.
4. - trough - the points when overall production and employment are very low.

When the cycle is on a down swing, it is called recessionary or depressionary (depending on how low it goes).

When the cycle has been in a down swing and is going up, it is called a recovery gap.

A period of growth that is visible when plotted on a chart is called expansionary.

Regardless of which phase or cycle an economic system is in, there is a need to describe or measure how long it remains at that point.

The measurement of the length of time is called a gap.

If over a period of time, the cycle goes down, but gradually, the decline is called a contractionary gap.

A period of economic recovery is characterized by production increases and higher employment.

The business cycle in poor countries can become a vicious circle.

Low incomes, result in low savings, which in turn result in low capital investment.

Low capital investment means that man hour productivity is low because of the lack of modern tools and equipment.

Low productivity means low incomes.

In order to prepare or interpret a graph of any type of business cycles, there must be a point from which to begin.

For graphs of business cycles, the point of beginning is 0 and is called the trend.

Click on this graph to make it larger.

Locate the high and low points, recovery and recessionary points, the trough.

What amount of time separates the beginning of phases?

If you want to do some research on business cycles, here is an excellent idea for study.

Begin with 1900 and the period of business growth and mergers.

Research the economic panic in 1907, the effects of World War I in 1916 on the economy, the post-war depression that followed in 1920, prosperity in the years 1924 -1928, the stock market crash of 1929 and the great depression that followed, and the recoveries and recessions that have followed up to the present day.

Prepare a graph and plot these points of time.

Label each phase of the graph with the appropriate term.

It will be helpful to read about these events in more than one source so you will know exactly what was going on.

Find out what the GNP and the unemployment levels at each period of time.

The causes of changes in the business cycle and the resulting consequences will rapidly become visible.

An excellent source for obtaining current economic information is an almanac. Current economic information of all types is also kept and published by the Department of Commerce. Visit your local library for assistance in this area.

Because of the economic trends of this century, a myriad of changes have take place in the business world.

One change that may have a direct impact on you is in the area of employment.

Business and industry are following a trend of hiring skilled and trained workers for short periods of time.

Employers are finding this is best for them because it saves money in employee benefits - especially retirement benefits.

Employers also go through downsizing more often. This allows the company to hire younger workers for lower pay and retire older workers.

When new methods and technologies require workers who are not trained to use them, frictional unemployment exists.

This means there is a mismatch between skills and workers.

When inflation begins to grow, the group most affected by it is people who are retired or are on a fixed income.

These people are forced to overcome increases in the cost of living without realizing an increase in their incomes.

This is very difficult, if not impossible, to do.

The potential labor force contains all individuals 18 years and older who are able and willing to do work.

The civilian labor force is what is left after subtracting all individuals within the 18 and older group who choose not to work and are not employed by the armed forces.

Our economic system can never be at 100% because that would mean that everyone over 18 years was employed and all production was at 100%.

However, during times of war, the rates of employment and production are at their highest.

It was only as recently as World War II that women in great numbers began to work outside the home. This was because the mostly male work force had been called to war. There was no one left to keep production going, so women began to take positions that had previously been occupied by men.

Think about the changes that resulted from this event.

Child care industries and related services grew. There was a need for more cooking and cleaning conveniences so women had more efficient use of their time. The clothing industry also grew because women had to have a wardrobe appropriate for the job world.

What other changes can you think of?

When the war was over, men returned to claim the positions that they had vacated when they went to war.

Many women were released from their jobs, but many more remained in the work force.

Many women were not eager to give up the incomes that they were earning.

They liked the benefits they earned in the work force.

Since 1941, the number of females who work has steadily increased.

Goods and services are purchased by the entire population.

However, during times of war, the largest consumer of goods and services is the government.

The government needs war supplies including, clothing, materials, housing, weapons, and medical care for all of those in the service.

Recession generally follows a war because the high demand for goods and services no longer exists.

More people are available to work, so unemployment increases.

There is a direct relationship among all segments of the economy.

Remember as you study business cycles that you must think like a social scientist.

Think about how business cycles will affect members of a society.

Try to predict what the effect of an event will have on the economy.

Many fortunes have been made and lost as a result of the business cycle.

Summary

This concludes this lesson on business cycles. Remember there are many factors that will affect a business cycle.

Take another look at the graphic at the bottom of this page to make sure that you have an understanding of the business cycle.