What Are Economic Cycles? How Do They Occur?

Economic cycles are the nearly predictable circles in which our economy turns.  This wheel that controls the market and how much value everything has goes through four phases.  Expansion, peak, contraction, and trough seem to fall after one another in a perfect pattern.  Although each portion of this cycle has its ups and downs, and none can exist without the others, there’s more positivity towards the first step.

Here’s what goes on in each step of the cycle and why they happen.



Expansion is where almost everyone wants the economy to sit.  It’s a steady upward climb to the top of a rollercoaster, a moment where there are no limits and dreams can run wild.  This portion of the economy is when jobs start booming; incomes become more competitive since they’re a worker’s market. People start buying more and more with their extra income.  Although some people may get left behind in this business, it usually accounts for everyone.

Big businesses get more money and can hire more people, and small businesses get more customers, allowing them to up their productions and hire on employees.  This type isn’t the best an economy can be, but it’s the most popular because it still has promise ahead of it.



As good as expansions are, the peak has a lot to offer as well.  This moment is where our economy is at the top of its game.  People can get jobs quickly and easily; employers are paying competitively and expanding constantly.  This time is where a hopeful bubble starts to form.  This bubble could be that people who feel good about their jobs take out more loans than they can afford to buy houses and cars.  It could also mean that banks and companies are borrowing from the government, in turn, to try and grow their company.  Unfortunately, this part of our economy isn’t limitless, and it does have a turning.



This step is where the bubble has burst, and it’s starting to pull back in.  Jobs are harder to find, companies that can’t afford to stay open the same as they used to begin laying off employees; there’s a sour note in the business world.  Wages may drop lower, and companies will be less competitive because it’s the employees having to complete a job.  This time when foreclosures begin to happen, and people start to lose their cars and property. Economic consulting firms see this as the lowest we can get because there’s no bounce back yet.



Although most people may consider this the lowest, instead of the contraction, there are reasons that it’s not.  This style has room for growth, space for companies to start hiring again, and time for people to find a job faster than they would have before.  This part is when our economy is at its lowest and is slowly starting to rebuild itself.  We don’t have to worry about being stuck in that gutter forever, expansion is on its way, and we know that we’re going to peak again.

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