A business cycle is a general description of four distinct phases that occur in the business cycle – growth, expansion, contraction, and rehabilitation. It is usually called the business cycle. Business cycles are identified by the characteristics of financial cycles. Financial cycles have cycles that run through different phases. In the process of identifying cycles a company can use several financial models.
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Great Depression The Great Depression lasted from 1920 to 1929 and is the result of an economic contraction. Great Depression has a major effect on the business cycle. This cycle is characterized by low business activity, falling prices, falling employment, and rising unemployment rate. During this period most businesses are affected and tend to close down. As a result the economy is affected as well. In Great Depression the government plays an important role in regulating business activities, and banks play an important role in providing credit.
Recession The beginning of recession is accompanied by falling economic growth and rising unemployment rate. This leads to capital formation and investment cuts. The business cycle picks up after recession when business activity picks up. The growth of the economy is slow at this phase but is expected to pick up as the economy recovers. In case of recession an appropriate corrective measure should be adopted quickly to prevent any major damage to the economy.