A trade cycle, also known as a business cycle, refers to the fluctuations in economic activity that an economy experiences over time. These fluctuations can include changes in the levels of employment, production, and prices.
There are typically four phases in a trade cycle: expansion, peak, contraction, and trough.
- Expansion: During the expansion phase, economic activity is growing. This is usually characterized by increasing levels of employment, production, and prices.
- Peak: The peak is the highest point of the expansion phase, when economic activity is at its highest level.
- Contraction: During the contraction phase, economic activity slows down or declines. This is usually characterized by decreasing levels of employment, production, and prices.
- Trough: The trough is the lowest point of the contraction phase, when economic activity is at its lowest level.
After reaching the trough, the economy begins to recover and enters the expansion phase again. This results in a cyclical pattern of economic activity, with periods of expansion and contraction occurring over time.
Trade cycles can be caused by a variety of factors, including changes in consumer and business confidence, changes in monetary and fiscal policy, and shocks to the economy such as recessions or natural disasters.