Business Cycle Graphs

Business cycle (also known as economic cycle) refers to economy-wide fluctuations in production or economic activity over several months or years. There could be tons of business cycle graphs that shows the fluctuations of the economy, namely real GDP growth, federal budget, unemployment rate, consumer spending, consumer sentiment, interest rates etc.

Why does business activity fluctuates ?

Business Cycle Graphs

There are many reasons for business activity fluctuates, listed below the 6 common reasons that fluctuates business activities:

1. Inventory Recession
2. Rolling Recessions
3. Innovation Cycle
4. Political Events
5. Misuse of Monetary and Fiscal Policy
6. Non-cyclical Fluctuations (Seasonal variation or Long-Term Secular Trends)

In a inventory recession, inventories were over expand due to excessive optimism, and eventually they must be worked down causing a recession. In modern days, the computers have made it easier to track inventory and made this type of recessions less likely, as most of the goods can be make to order (on-demand production).

In a rolling recession, economic downturn is limited to areas or sectors of the economy.
a. Economic activity eventually increases but by then other areas and sectors are in recession.
b. International competition has increased the occurrence of this type of recession as sectors such as steel, autos, and recently computers have been affected.

The invention and enhancement of railroads, computers, bio-technology caused the innovation cycle.

Wars and international trade are 2 examples of political events that fluctuates a business activity.

When a government creates and/or borrows an incorrect amount of money, (i.e. misuse of monetary and fiscal policy), it will definitely creates uncertainty to the economy.

While for the non-cyclical fluctuations, the 2 factors that may contribute to the business cycle graphs are:
a. Seasonal variation such as Christmas buying rush in retail and spring construction for real estates
b. Long-term secular trends such as the expansion or contraction in the level of economic activity over a long period of years (the dark ages, the industrial revolution)

Business Cycle Graphs

Please note that despite being termed business cycles, most of these fluctuations in economic activity do not follow a mechanical or predictable periodic pattern.

Business cycle graphs are widely used to describe the economy of a country.

Business cycle graphs were produced by gathering key data on the economic health of a company or country, showing economists specific areas of interest, called indicators, which may then be used to give an idea of where the movement is heading.

For example, check out the standard-and-poor-composite-index-over-137-years business cycle graphs below:

Click here to view the full image of standard-and-poor-composite-index-over-137-years

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