What describes the 'business cycle'?

The business cycle refers to the regular fluctuations in economic activity over time. This concept encompasses the periods of expansion, where economic activity increases, followed by peaks, contractions or recessions, where economic activity decreases, and troughs, which represent the lowest point of economic activity before the cycle begins anew with another expansion. These fluctuations are natural in a market economy and can be influenced by various factors, including changes in consumer demand, investment levels, and government policy.

Understanding the business cycle is vital for economists and policymakers, as it helps them anticipate and respond to economic changes to stabilize the economy. The cycle illustrates how economies go through phases of growth and decline, impacting employment, production, and consumer confidence.