Hi i'm rainey with finance strategist in this lesson we're going to cover business cycle refers to the cyclical movements of expansion and contraction in an economy that is necessary to maintain its equilibrium the ebbs and flows of a business cycle provide market entry and exit points for investors .
For example investors can purchase valuable assets that become cheap during a bottoming out of the economy consequently they can sell off those same assets when the economy peaks there are six phases in a business cycle expansion during this stage an economy expands and its gross domestic product increases .
Businesses thrive and consumer spending increases while they are still affordable asset prices are on and upswing this is also known as a bull market and tends to be slow and gradual peak this is a culmination of the expansion phase .
During this period an economy becomes overheated and growth hits its peak important economic indicators such as gdp and unemployment which were positive during the expansion phase hit their peak and remain stagnant recession a recession is the period between expansion and drop .
Economic indicators begin to fall due to overheating or an economy which has expanded at an unsustainable rate demand falls unemployment shoots up and gdp plummets this is also known as a bear market and tends to be more swift than a bull market depression a depression is a more severe .
Economic downturn of the economy following a recession the general economic direction remains the same as during a recession but lasts for a longer period there is only one instance of a recorded depression in the us economy it is known as the great depression and it occurred between the years of 1929 .
And 1933 trough the trough stage is the opposite equivalent to the peak stage the economy hits a nader or rock bottom and economic growth remains stagnant during this stage recovery the economy begins to expand once again during this stage as investors move in to purchase cheap assets demand picks up and workers .
Go back to work consumer confidence and spending rises and the economy is in expansion mode once again recoveries can happen in multiple shapes for example a v-shaped recovery indicates a fairly small trough period followed by a sudden increase in demand .
Once again a u-shaped recovery indicates a prolonged trough period and a slower pace of demand increase it's important to note that the phases in a business cycle aren't always clear and typically better observed in hindsight the coven 19 pandemic is an example of an unclear business cycle .
With rising stock prices yet decreasing gdp and high unemployment rates let's hear from you why are so many businesses started during times of war or during other troughs leave your answer in the comments below for more information visit .
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