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what is the business cycle

What is the Business Cycle?

Regardless of what type of product or service your business sells, you’ll probably notice that sales increase or decrease at certain times of the year. Some businesses are more prone to sales fluctuations than others. Seasonal businesses, such as a Halloween costume store, generate most of their annual profit during a specific time of year. With that said, all businesses will experience sales fluctuations, making it important to understand what is the business cycle and how it affects your business.

What is the Business Cycle?

what is the business cycleBusiness Cycle Explained

Also known as the economic cycle and trade cycle, the business cycle is a representation of a business’s gross domestic product (GDP) over a period of time. It shows the ups and downs of a business’s GDP (the value of its finished products or services) over the course of many months or years.

The Stages of the Business Cycle

There are several stages of the business cycle. First and foremost, there’s the expansion stage, which lives up to its namesake by depicting economic growth. When a business produces more products and services, its GDP increases. This economic growth is depicted on the business cycle, showing that the business is generating profits.

The second stage of the business cycle is called the peak. At this stage, the business’s GDP has reached a point where it can no longer grow and expand; it’s reached its “peak.” At this point, the business is doing good and has essentially reached its saturation point.

what is the business cycleThe third stage of the business cycle is recession. Even if you’re unfamiliar with the business cycle, you’ve probably heard of recession before. There was a great recession from December 2007 to June 2009, during which the U.S. economy shed roughly 4.2% from its GDP, according to the Department of Labor. Likewise, the recession stage of the business cycle is characterized by contraction, as the business’s GDP falls below its previous peak point.

The fourth stage of the business cycle is the trough. This occurs when the business’s economic output hits rock bottom. The business’s GDP has essentially reached its lowest point to date.

Although these are the four basic stages of the business cycle, an unofficial stage following them is recovery. Of course, the recovery stage occurs when the business muscles its way out of the trough by increasing its GDP.

This article was brought to you by Intrepid Private Capital Group – A Global Financial Services Company. For more information on startup and business funding, or to complete a funding application, please visit our website.

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Intrepid Private Capital Group • October 17, 2018

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