Definition of The Business cycle – The Business cycle refers to the cyclical nature of economic growth. Typically the business cycles involves a period of rapid growth followed by slower growth or in some cases a recession.
The business cycle is sometimes referred to as the ‘trade cycle’ or just economic cycle. Some business cycles are more volatile and become known as a period of ‘boom and bust’. Other business cycles are more stable.
Since the Bank of England monetary policy committee was made independent in 1997, the UK business cycle has been more stable, avoiding the economic boom and bust of the late 1980s.
Causes of the Business Cycle.
Economic Booms are caused by monetary policy that is too ‘loose’. e.g. interest rates are too low and this encourages consumer spending and economic growth.
Economic downturns occur when the economy runs out of steam or the monetary authorities seek to reduce demand to prevent inflationary pressures.