assignment about business cycle

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What Is a Business Cycle?

• How It Works
• Measuring and Dating
• Relationship With Stock Prices

The Bottom Line

Business cycle: what it is, how to measure it, and its 4 phases.

• Depression in the Economy: Definition and Example
• Economic Collapse
• Business Cycle CURRENT ARTICLE
• Boom And Bust Cycle
• Negative Growth
• What Was the Great Depression?
• Were There Any Periods of Major Deflation in U.S. History?
• The Greatest Generation
• U.S. Government Financial Bailouts
• Austerity: When the Government Tightens Its Belt
• The New Deal
• The Economic Effects of the New Deal
• Gold Reserve Act of 1934
• Emergency Banking Act of 1933

Madelyn Goodnight / Investopedia

Business cycles are a type of fluctuation found in the aggregate economic activity of a nation—a cycle that consists of expansions occurring at about the same time in many economic activities, followed by similarly general contractions. This sequence of changes is recurrent but not periodic.

The business cycle is also called the economic cycle .

Key Takeaways

• Business cycles are composed of concerted cyclical upswings and downswings in the broad measures of economic activity—output, employment, income, and sales.
• The alternating phases of the business cycle are expansions and contractions.
• Contractions often lead to recessions, but the entire phase isn't always a recession.
• Recessions often start at the peak of the business cycle—when an expansion ends—and end at the trough of the business cycle, when the next expansion begins.
• The severity of a recession is measured by the three Ds: depth, diffusion, and duration.

Understanding the Business Cycle

In essence, business cycles are marked by the alternation of the phases of expansion and contraction in aggregate economic activity and the co-movement among economic variables in each phase of the cycle.

Aggregate economic activity is represented by not only real (i.e., inflation-adjusted) GDP —a measure of aggregate output—but also the aggregate measures of industrial production, employment, income, and sales, which are the key coincident economic indicators used for the official determination of U.S. business cycle peak and trough dates.

Popular misconceptions are that the contractionary phase is a recession and that two consecutive quarters of decline in real GDP (an informal rule of thumb) means a recession.

It's important to note that recessions occur during contractions but are not always the entire contractionary phase. Also, consecutive declines in real GDP are one of the indicators used by the NBER, but it is not the definition the organization uses to determine recessionary periods.

On the flip side, a business cycle recovery begins when that recessionary vicious cycle reverses and becomes a virtuous cycle, with rising output triggering job gains, rising incomes, and increasing sales that feedback into a further rise in output .

The recovery can persist and result in a sustained economic expansion only if it becomes self-feeding, which is ensured by this domino effect driving the diffusion of the revival across the economy.

Of course, the stock market is not the economy. Therefore, the business cycle should not be confused with market cycles , which are measured using broad stock price indices.

Measuring and Dating Business Cycles

The severity of a recession is measured by the three D's: depth, diffusion, and duration. A recession's depth is determined by the magnitude of the peak-to-trough decline in the broad measures of output, employment, income, and sales.

Its diffusion is measured by the extent of its spread across economic activities, industries, and geographical regions. Its duration is determined by the time interval between the peak and the trough.

An expansion begins at the trough (or bottom) of a business cycle and continues until the next peak, while a recession starts at that peak and continues until the following trough.

The National Bureau of Economic Research (NBER) determines the business cycle chronology—the start and end dates of recessions and expansions for the United States.

Accordingly, its Business Cycle Dating Committee considers a recession to be "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

The Great Depression featured many recessions, one of which lasted for 44 months.

The Dating Committee typically determines recession start and end dates long after the fact. For instance, after the end of the 2007–09 recession, it "waited to make its decision until revisions in the National Income and Product Accounts [were] released on July 30 and Aug. 27, 2010," and announced the June 2009 recession end date on Sept. 20, 2010.

U.S. expansions have lasted longer than U.S. contractions on average. Between 1945 and 2019, the average expansion lasted about 65 months. The average recession lasted approximately 11 months.

Between the 1850s and World War II, the average expansion lasted about 26 months and the average recession about 21 months. The longest expansion was from 2009 to 2020, which lasted 128 months.

Stock Prices and the Business Cycle

The biggest stock price downturns tend to occur—but not always—around business cycle downturns (e.g., contractions and recessions). For example, the Dow Jones Industrial Average and the S&P 500 took steep dives during the Great Recession. The Dow fell 51.1%, and the S&P 500 fell 56.8% between Oct. 9, 2007 to March 9, 2009.

There are many reasons for this, but primarily, it is because businesses assume defensive measures and investor confidence falls during contractionary periods. Many events occur before people in an economy are aware they are in a contraction, but the stock market trails what is going on in the economy.

So, if there is speculation or rumors about a recession, mass layoffs , rising unemployment, decreasing output, or other indications, businesses and investors begin to fear a recession and act accordingly. Businesses assume defensive tactics, reducing their workforces and budgeting for an environment of falling revenues.

Investors flee to investments "known" to preserve capital, demand for expansionary investments falls, and stock prices drop.

It's important to remember that while stock prices tend to fall during economic contractions, the phase does not cause stock prices to fall—fear of a recession causes them to fall.

What Are the Stages of the Business Cycle?

In general, the business cycle consists of four distinct phases: expansion, peak, contraction, and trough.

What Does a Business Cycle Describe?

A business cycle describes the fluctuations in an economy over a period of time, generally the period from the start of one recession to the start of the next. This would include periods when the economy grows.

Are Business Cycles Predictable?

Generally, business cycles are not predictable. Economies are complex machines that function in a variety of ways and are intertwined in as many ways. The ability to predict how they will move is extremely difficult. There can be signs of changes in an economy, such as changes in inflation and production, but to predict an all-out change in the business cycle is very tough if not impossible.

The business cycle is the time it takes the economy to go through all four phases of the cycle: expansion, peak, contraction, and trough. Expansions are times of increasing profits for businesses, and rising economic output, and are the phase the U.S. economy spends the most time in. Contractions are times of decreasing profits and lower output and are the phase in which the least amount of time is spent.

Federal Reserve Bank of St. Louis. " All About the Business Cycle: Where Do Recessions Come From? "

The National Bureau of Economic Research. " Business Cycle Dating ."

National Bureau of Economic Research. " The NBER's Recession Dating Procedure ."

Congressional Research Service. " Introduction to U.S. Economy: The Business Cycle and Growth ," Page 1.

National Bureau of Economic Research. " Business Cycle Dating Committee, National Bureau of Economic Research ."

Congressional Research Service. " Introduction to U.S. Economy: The Business Cycle and Growth ," Page 2.

Federal Reserve Bank of Atlanta. " Stock Prices in the Financial Crisis ."

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Business Cycle

A series of expansion and contraction in economic activity

What is a Business Cycle?

A business cycle is a cycle of fluctuations in the Gross Domestic Product (GDP) around its long-term natural growth rate. It explains the expansion and contraction in economic activity that an economy experiences over time.

A business cycle is completed when it goes through a single boom and a single contraction in sequence. The time period to complete this sequence is called the length of the business cycle.

A boom is characterized by a period of rapid economic growth, whereas a period of relatively stagnated economic growth is a recession. These are measured in terms of the growth of the real GDP, which is inflation-adjusted.

Stages of the Business Cycle

In the diagram above, the straight line in the middle is the steady growth line. The business cycle moves about the line.  Below is a more detailed description of each stage in the business cycle:

1. Expansion

The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services. Debtors are generally paying their debts on time, the velocity of the money supply is high, and investment is high. This process continues as long as economic conditions are favorable for expansion.

The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum limit of growth is attained. The economic indicators do not grow further and are at their highest. Prices are at their peak. This stage marks the reversal point in the trend of economic growth. Consumers tend to restructure their budgets at this point.

3. Recession

The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

4. Depression

There is a commensurate rise in unemployment. The growth in the economy continues to decline, and as this falls below the steady growth line, the stage is called a depression.

In the depression stage, the economy’s growth rate becomes negative. There is further decline until the prices of factors, as well as the demand and supply of goods and services, contract to reach their lowest point. The economy eventually reaches the trough. It is the negative saturation point for an economy. There is extensive depletion of national income and expenditure.

6. Recovery

After the trough, the economy moves to the stage of recovery. In this phase, there is a turnaround in the economy, and it begins to recover from the negative growth rate. Demand starts to pick up due to low prices and, consequently, supply begins to increase. The population develops a positive attitude towards investment and employment and production starts increasing.

Employment begins to rise and, due to accumulated cash balances with the bankers, lending also shows positive signals. In this phase, depreciated capital is replaced, leading to new investments in the production process. Recovery continues until the economy returns to steady growth levels. 

This completes one full business cycle of boom and contraction. The extreme points are the peak and the trough.

Explanations by Economists

John Keynes explains the occurrence of business cycles is a result of fluctuations in aggregate demand, which bring the economy to short-term equilibriums that are different from a full-employment equilibrium.

Keynesian models do not necessarily indicate periodic business cycles but imply cyclical responses to shocks via multipliers. The extent of these fluctuations depends on the levels of investment, for that determines the level of aggregate output.

In contrast, economists like Finn E. Kydland and Edward C. Prescott, who are associated with the Chicago School of Economics, challenge the Keynesian theories. They consider the fluctuations in the growth of an economy not to be a result of monetary shocks, but a result of technology shocks, such as innovation.

Additional Resources

Thank you for reading CFI’s guide to Business Cycle. To learn more, check out these additional CFI resources:

• Free Economics for Capital Markets Course
• Law of Supply
• Normative Economics
• Cyclical Unemployment
• Inelastic Demand
• See all economics resources
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The Business Cycle: Introduction to Macroeconomic Indicators

Students will be able to:

• Define and label the phases of the business cycle.
• Understand and define the general meaning of the terms associated with business cycle.
• Understand that the business cycle is comprised of expansions and contractions of the GDP within the economy.

National Standards in Economics

National Standards in Financial Literacy

State Standards

Common Core State Standards

In this economics lesson, students will analyze graphs to learn the parts of the business cycle.

Tell students this lesson will help them understand a basic macroeconomic tool called the business cycle. Have students look at either FRED from the St. Louis Fed or project the graph in the link on the board for them to see. Ask students: “How do you think the economy is doing right now?”and give them sufficient time to respond. If they do not respond or need more prompting, ask: “Is the economy growing (going up) or shrinking (going down)?” Follow up by asking: “What factors do you think is causing economic activity to be up (or down)?”

Open the PowerPoint titled The Business Cycle . Slide 2: Explain that these will be the key words used to discuss the business cycle. Tell students that a business cycle is just a period of expansion and contraction of the economy, measured by changes in the real GDP, or Gross Domestic Product. Slide 3: Walk students through the phases of the business cycle, discussing each phase and giving students enough time to copy the slide into the notes. Explain the following: In the expansion part of the cycle, GDP is growing, unemployment is going down, but inflation may be rising. In the contraction part of the cycle, GDP is shrinking, unemployment is growing, and inflation may stall or shrink. Slides 4 and 5 are the vocabulary terms with definitions. Talk about these definitions and give students enough time to copy them. You may also want to go back to slide 3 to discuss them. Slide 6: Have one or more students come to the board to draw and label the business cycle.

Group Activity

Put students in pairs to complete the Business Cycle Activity. Distribute one copy of the cards and answer sheet to each pair of students. Tell students that you will be reading each statement, then giving them one minute to discuss the potential answer with their partner. Once selecting an answer, they should place an X showing their answer and hold up the card corresponding with their answer. Start the activity, stopping to review and discuss student answers after each statement. After completing the activity, ask students if they have any questions about the business cycle.

Individual Activity

Distribute a copy of Drawing a Business Cycle activity to each students. Tell students they should review the information and complete the assignment. Debrief the assignment by reviewing student answers. (Answers will vary, but be sure each graph has the four phases of the business cycle. Unemployment should increase during a recession and decrease during a recovery.)

Have students complete the Kahoot! Business Cycle Ticket and see the answers here.

Have students complete the worksheet “ The Great Recession “. The article can be accessed electronically or printed out for students. Tell students to read the article and answer the questions from the reading. Review their answers and answer any questions they may have.

Put students into small groups. Randomly assigned each group a 10-year period (1980-1990, 1970-1980, etc.). Have each group visit The Balance web site to plot the GDP for each year in their ten year cycle. Be sure they label the phases of their business cycle and identify the lowest/highest periods of unemployment. You may choose to have them complete this assignment on the computer or with graph paper. Have the groups present their graphs to the class in sequence, explaining the parts of the business cycle for that 10-year period. You may also want them to post their graphs on the board for a historical perspective of the U.S. economy.

Fred St. Louis Fed

Resource Slides

Group Activity Cards

The Business Cycle Group Activity

The Business Cycle Group Activity Answer Key

Drawing a Business Cycle

Kahoot! Game

The Business Cycle Ticket out the Door (Kahoot)

The Great Recession

The Great Recession Answer Key

The Great Recession article

The Balance.com GDP

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• US & World Economies
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What Is the Business Cycle?

How Does the Business Cycle Work?

The four phases of the business cycle, example of a business cycle, what influences the business cycle, frequently asked questions (faqs).

The Balance

The business cycle is the natural rise and fall of economic growth that occurs over time. The cycle is a useful tool for analyzing the economy and can help you make better financial decisions.

The business cycle is a term used by economists to describe the increase and decrease in economic activity over time, with four phases from expansion to trough. The economy is all activities that produce, trade, and consume goods and services within the U.S.—such as businesses, employees, and consumers. Thus, the measured amount of productivity is what the business cycle refers to.

Key Takeaways

• The business cycle goes through four major phases: expansion, peak, contraction, and trough. 
• All economies go through this cycle, though the length and intensity of each phase varies. 
• The Federal Reserve helps to manage the cycle with monetary policy, while heads of state and governing bodies use fiscal policy.
• Consumer and investor confidence play roles in influencing economic performance and the phases in the cycle.

When businesses are increasing production, they need more employees. As a result, more people are hired, there is more money to spend, and businesses make more profits and can focus on growth . The rate at which production and consumption change positively is called economic expansion. It continues until circumstances occur that cause production to slow.

If business production slows, not as many employees are needed. As a result, consumers have less spending money, and businesses reduce spending on growth. The rate at which production and consumption as a whole change negatively is called economic contraction.

The duration of a business cycle is the period containing one expansion and contraction in sequence. One complete business cycle has four phases: expansion, peak, contraction , and trough. They don’t occur at regular intervals or lengths of time, but they do have recognizable indicators.

It's important to understand that there are mini-fluctuations within an economic phase that can make it appear as if the economy is transitioning to another phase. The National Bureau of Economic Research (NBER) determines which cycle the economy is in using quarterly gross domestic product (GDP) growth rates. It also uses monthly economic indicators, such as employment, real personal income, industrial production, and retail sales.

While you'll hear speculation in the media about the state of the economy, there is no official notice of what cycle the economy is in until it's already in progress—or complete—and the NBER has had a chance to analyze the data and declare it.

Three factors can contribute to each phase of the business cycle: the forces of supply and demand, the availability of capital, and consumer and investor confidence. Confidence in the future plays a key role. When consumers and investors have faith in the future and policymakers, the economy tends to expand. It does the opposite when confidence levels drop.

A business cycle typically goes through four phases before it's complete: expansion, peak, contraction, and trough.

An economic expansion is a period of growth throughout an economy. Because productivity is increasing, it is generally represented on a curve as an upward movement. In some cases, the expansion phase is also known as the economic recovery phase because it occurs after the economy has contracted for a long period.

Gross domestic product is the measurement often used to gauge economic output. During the expansion phase, GDP increases. Economists consider a GDP growth rate range of around 2% to be healthy.

The Federal Reserve's goal is to keep inflation, the measurement of the change in prices, at around 2%—also considered healthy by economists and officials.

In an expansion, the stock market experiences rising prices, and investors are confident. Businesses receive more funding and make more, and consumers have more money to spend. An economy can remain in the expansion phase for years.

The expansion phase nears its end when the economy begins to grow too fast. This is called overheating—the unemployment rate is well below the natural rate, and inflation is increasing. Stock market investors are in a state of irrational exuberance , where they become overly enthusiastic about prices and believe they will continue to rise. This causes stock prices to rise to a point where they are very overvalued.

The peak is the second phase of the cycle. It occurs when all of the expansionary indicators begin to level off before heading into a contraction. The economy might take weeks or a year to transition into the contraction phase. The GPD growth rate falls below 2% and continues to decline. The peak is displayed on a graph as the highest portion of the curve before moving downward.

Contraction

The third phase is the contraction stage. It begins after the economy peaks and ends when GDP and other indicators cease to decrease. In this stage, the economy does not experience growth; instead, it shrinks. When the GDP rate turns negative, the economy enters a recession. Businesses lay off employees, the unemployment rate rises above normal levels, and prices begin to decline.

A contraction is generally portrayed on a graph as the part of the curve that is consistently decreasing.

The trough is the fourth phase of the business cycle. The declining GDP begins to decrease its rate of negative change, eventually turning positive again. The economy begins a transition from the contraction phase to the expansion phase. A trough is displayed on a graph as the lowest point of the curve. The business cycle begins again when GDP begins to increase, and the curve moves upward consistently.

The business cycle's four phases can be so severe that they have been called the boom-and-bust cycle .

The peak that preceded the 2008 recession occurred in the third quarter of 2007 when GDP growth was 2.4%. The 2008 recession was a rough one because the economy immediately contracted by 1.6% in the first quarter of 2008. It rebounded 2.3% in the second quarter, an optimistic sign. However, it contracted 2.1% in the third quarter and then 8.5% in the fourth quarter. In the first quarter of 2009, it contracted by 4.6%.

During 2008, the unemployment rate rose from 4.9% in January to 7.2% by December.

The trough occurred at the end of the second quarter of 2009, according to the NBER. GDP only contracted by 0.7%. Unemployment, however, rose to 10.2% by October 2009 because it is a lagging indicator.

The expansion phase started in the third quarter of 2009 when GDP rose 1.5%. Four years into the expansion phase, the unemployment rate was still above 7%, because the contraction phase moved the economy so low that it took much longer to recover.

The government monitors the business cycle, and legislators attempt to influence it by implementing tax and spending changes. When the economy is expanding, taxes can be increased, and spending can be decreased. If it's contracting, the government can lower taxes and increase spending. This is called fiscal policy .

The Federal Reserve, the nation's central bank, influences the business cycle by influencing inflation and unemployment with targeted rates. It uses tools designed to change interest rates, lending, and borrowing by businesses, banks, and consumers. This is called monetary policy .

The Fed lowers its target interest rates to encourage borrowing in attempts to end a contraction or trough. This is called expansionary monetary policy because they are attempting to push the business cycle back into the expansionary phase.

To keep the economy from growing too quickly, the central bank raises its target interest rates to discourage borrowing and spending. This is called contractionary monetary policy because the bank is trying to contract economic output to keep expansion under control.

The goal of fiscal and monetary policy is to keep the economy growing at a sustainable rate while creating enough jobs for everyone who wants one, and ensuring that inflation does not get out of control.

What is the business cycle in simple words?

The business cycle describes an economy's cycle of growth and decline.

What are the four stages of the business cycle?

The four stages of the business cycle are expansion, peak, contraction, and trough.

National Bureau of Economic Research. " The NBER's Business Cycle Dating Committee ."

National Bureau of Economic Research. " The NBER's Business Cycle Dating Procedure: Frequently Asked Questions ."

Congressional Research Service. " Introduction to U.S. Economy: The Business Cycle and Growth ."

Federal Reserve Bank of San Francisco. " Confidence and the Business Cycle ." Page 4.

Stanford University. " The Facts of Economic Growth ."

Federal Reserve. " What Economic Goals Does the Federal Reserve Seek To Achieve Through Its Monetary Policy? "

Federal Reserve Bank of St. Louis. " Asset Bubbles: Detecting and Measuring Them Are Not Easy Tasks ."

The Conference Board. " What Are Business Cycles and How Are They Measured? (Simplified) ."

International Monetary Fund. " Recession: When Bad Times Prevail ."

Boston College University. " What Are the Sources of Boom-Bust Cycles? " Page 1.

Bureau of Economic Analysis. " National Data: National Income and Product Accounts: Table 1.1.1. Percent Change From Preceding Period in Real Gross Domestic Product ."

Bureau of Labor Statistics. " The Employment Situation: December 2008 ."

Bureau of Labor Statistics. " The Employment Situation: January 2008 ."

National Bureau of Economic Research. " Business Cycle Dating Committee, National Bureau of Economic Research, September 20, 2010 ."

Bureau of Labor Statistics. " Unemployment in October 2009 ."

Bureau of Labor Statistics. " Labor Force Statistics From the Current Population Survey ," Set range from 2007 to 2013.

Congressional Research Service. " Introduction to U.S. Economy: Fiscal Policy ," Pages 1-2.

Business Cycles

Time required: 30 minutes

Timothy Cook

This article on business cycles  includes information on the characteristics of the business cycle, theories on the causes of the business cycle, and how those theories have evolved since the Great Recession.

In Class Handouts

• Jargon Alert: Business Cycles  (from the First Quarter 2017 issue of Econ Focus )
• Quiz  ( Econ Focus Reading Q&A resource)

(Note: the answer key is available at the St. Louis Fed's  Econ Lowdown Teacher Portal . See the online assignment section for more information.)

As an Online Assignment

Visit the Reading Q&As in the St. Louis Fed’s Econ Lowdown Teacher Portal , to assign an online version of the student materials and to collect student scores on the questions. The materials are still free—but having them in the portal keeps students from accessing the answer key.

Related Resources

Classroom Economist: The Business Cycle Video

The Business Cycle - The Economic Lowdown Podcast Series, Episode 18

Voluntary National Content Standards in Economics

Standard 18: Economic Fluctuations. Fluctuations in a nation’s overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy. Recessions occur when overall levels of income and employment decline.

• Benchmark 3, Grade 12:  A business cycle involves fluctuations of real GDP around its potential level.
• Benchmark 4, Grade 12: Fluctuations of real GDP around its potential level occur when overall spending declines, as in a recession, or when overall spending increases rapidly, as in recovery from a recession or in an expansion.

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What is Business Cycles? Phases, Types, Theory, Nature

• Post last modified: 1 August 2021
• Reading time: 40 mins read
• Post category: Economics

What is the Business Cycle?

Business Cycle , also known as the  economic cycle  or  trade cycle , is the fluctuations in economic activities or rise and fall movement of gross domestic product (GDP) around its long-term growth trend.

No era can stay forever. The economy too does not enjoy same periods all the time. Due to its dynamic nature, it moves through various phases.

Table of Content

• 1 What is the Business Cycle?
• 2 Business Cycle Definition
• 3.1 Expansion
• 3.3 Contraction
• 4.1 Cyclical nature
• 4.2 General nature
• 5 Types of Business Cycle
• 6.1 Hawtrey Monetary Theory
• 6.2 Innovation Theory
• 6.3 Keynesian Theory
• 6.4 Hicks Theory
• 6.5 Samuelson theory
• 7 Business Economics Tutorial

The change in business activities due to fluctuations in economic activities over a period of time is known as a business cycle . Business cycle are also called trade cycle or economic cycle. Business Cycle  can also help you make better financial decisions. 

The economic activities of a country include total output, income level, prices of products and services, employment, and rate of consumption. All these activities are interrelated; if one activity changes, the rest of them also change.

Also Read: What is Economics?

Business Cycle Definition

Arthur F. Burns and Wesley C. Mitchel defined business cycle definition as

Business cycle are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises: a cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle; in duration, business cycle vary from more than one year to ten or twelve years; they are not divisible into shorter cycle of similar characteristics with amplitudes approximating their own. Arthur F. Burns & Wesley C. Mitchel

Also Read: What is Demand in Economics

Phases of Business Cycle

4 Phases of Business Cycle are:

Contraction

Let us discuss 4 phases of business cycle in detail:

Expansion is the first phase of a business cycle . It is often referred to as the growth phase .

In the expansion phase, there is an increase in various economic factors, such as production, employment, output, wages, profits, demand and supply of products, and sales. During this phase, the focus of organisations remains on increasing the demand for their products/services in the market.

The expansion phase is characterised by:

• Increase in demand
• Growth in income
• Rise in competition
• Rise in advertising
• Creation of new policies
• Development of brand loyalty

In this phase, debtors are generally in a good financial condition to repay their debts; therefore, creditors lend money at higher interest rates. This leads to an increase in the flow of money.

In the expansion phase, due to increase in investment opportunities, idle funds of organisations or individuals are utilised for various investment purposes. The expansion phase continues till economic conditions are favourable.

Peak is the next phase after expansion. In this phase, a business reaches at the highest level and the profits are stable. Moreover, organisations make plans for further expansion.

Peak phase is marked by the following features:

• High demand and supply
• High revenue and market share
• Reduced advertising
• Strong brand image

In the peak phase, the economic factors, such as production, profit, sales, and employment, are higher but do not increase further.

An organisation after being at the peak for a period of time begins to decline and enters the phase of contraction. This phase is also known as a recession .

An organisation can be in this phase due to various reasons, such as a change in government policies, rise in the level of competition, unfavourable economic conditions, and labour problems. Due to these problems, the organisation begins to experience a loss of market share.

The important features of the contraction phase are:

• Reduced demand
• Loss in sales and revenue
• Reduced market share
• Increased competition

In Trough phase, an organisation suffers heavy losses and falls at the lowest point. At this stage, both profits and demand reduce. The organisation also loses its competitive position.

The main features of this phase are:

• Lowest income
• Loss of customers
• Adoption of measures for cost-cutting and reduction
• Heavy fall in market share

In this phase, the growth rate of an economy becomes negative. In addition, in trough phase, there is a rapid decline in national income and expenditure.

After studying the business cycle , it is important to study the nature of business cycle .

Read: Difference Between Micro and Macro Economics

Nature of Business Cycle

The nature of business cycle helps the organisation to be prepared for facing uncertainties of the business environment.

Cyclical nature

General nature.

Let us discuss the nature of business cycle in detail.

This is the periodic nature of a business cycle. Periodicity signifies the occurrence of business cycle at regular intervals of time. However, periods of intervals are different for different business cycle . There is a general consensus that a normal business cycle can take 7 to 10 years to complete.

The general nature of a business cycle states that any change in an organisation affects all other organisations too in the industry. Thus, general nature regards the business world as a single economic unit.

For example, depression moves from one organisation to the other and spread throughout the industry. The general nature is also known as synchronism.

Read: What is Business Economics?

Types of Business Cycle

Following the writings of Prof .James Arthur and Schumpeter, we can classify business cycle into three types based on the underlying time period of existence of the cycle as follows:

• Short Kitchin Cycle
• Longer Juglar cycle
• Very long Kondratieff Wave

Short Kitchin Cycle (very short or minor period of the cycle, approximately 40 months duration)

Longer Juglar cycle (major cycles, composed of three minor cycles and of the duration of 10 years or so)

Very long Kondratieff Wave (very long waves of cycle, made up of six major cycles and takes more than 60 years to run its course of duration)

Also Read: Scope of Economics

Business Cycle Theory

A business cycle is a complex phenomenon which is common to every economic system. Several theories of business cycle have been propounded from time to time to explain the causes of business cycle.

Business Cycle Theory are:

Hawtrey Monetary Theory

Innovation theory.

• Keynesian theory

Hicks Theory

Samuelson theory.

Hawtray was of opinion that in depression monetary factors play a critical role. The main factor affecting the flow of money and money supply is the credit position by the bank. He made the classical quantity theory of money as the basis of his trade cycle theory .

According to him, both monetary and non-monetary factors also affect trade. His theory is basically the product of the supply of money and expansion of credit. This expansion of credit and other money supply instrument create a cumulative process of expansion which in return increase aggregate demand.

According to this theory the only cause of fluctuations in business is due to instability of bank credit. So it can be concluded that Hawtray’s theory of business cycle is basically depend upon the money supply, bank credits and rate of interests.

Criticism of this Business Cycle theory

• Hawtray neglected the role of non-monetary factors like prosperous agriculture, inventions, rate of profit and stock of capital.
• It only concentrates on the supply of money.
• Increase in interest rates is not only due to economic prosperity but also due to other factors.
• Over-emphasis on the role of wholesalers.
• Too much confidence in monetary policy. vi. Neglect the role of expectations. vii. Incomplete theory of trade cycles.

The innovation theory of business cycle is invented by an American Economist Joseph Schumpeter. According to this theory, the main causes of business cycle are over-innovations.

He takes the meaning of innovation as the introduction and application of such techniques which can help in increasing production by exploiting the existing resources, not by discoveries or inventions. Innovations are always inspired by profits. Whenever innovations are introduced it results into profitability then shared by other producers and result in a decline in profitability.

• Innovation fails to explain the period of boom and depression.
• Innovation may be major factor of investment and economic activities but not the complete process of trade cycle.
• This theory is based on the assumption that every new innovation is financed by the banks and other credit institutions but this cannot be taken as granted because banks finance only short term loans and investments.

Keynesian Theory

The theory suggests that fluctuations in business cycle can be explained by the perceptions on expected rate of profit of the investors. In other words, the downswing in business cycle is caused by the collapse in the marginal efficiency of capital, while revival of the economy is attributed to the optimistic perceptions on the expected rate of profit.

Moreover, Keynesian multiplier theory establishes linkages between change in investment and change in income and employment. However, the theory fails to explain the cumulative character both in the upswing and downswing phases of business cycle and cyclical fluctuations in economic activity with the passage of time.

Hicks extended the earlier multiplier-accelerator interaction theory by considering real world situation. In reality, income and output do not tend to explode; rather they are located at a range specified by the upper ceiling and lower floor determined by the autonomous investment.

In the theory, it is assumed that autonomous investment tends to grow at a constant percentage rate over the long run, the acceleration co-efficient and multiplier co-efficient remain constant throughout the different phases of the trade cycle, saving and investment co-efficient are such that upward movements take away from equilibrium.

The actual output fails to adjust with the equilibrium growth path overtime. In fact it has a tendency to run above it and then below it, and thereby, constitute cyclical fluctuations overtime. This basic intuition can be shown with the help of the following figure.

• Wrong assumption of constant multiplier and acceleration co-efficient.
• Highly mechanical and mathematical device.
• Wrong assumption of no-excess capacity.
• Full-employment ceiling is not independent

According to this theory process of multiplier starts working when autonomous investment takes place in the economy. With the autonomous investment income of the people rises and there is increase in the demand of consumer goods. It directly affected the marginal propensity to consume.

If there is no excess production capacity in the existing industry then existing stock of capital would not be adequate to produce consumer goods to meet the rising demand. Now in order to meet the consumer’s requirements, producers will make new investment which is derived investment and the process of acceleration principle comes into operation.

Then there is rise in income again which in the same manner continue the process of income propagation. So in this way multiplier and acceleration interact and make the income grow at faster rate than expected. After reaching its peak, income comes down to bottom and again start rising.

Autonomous investment is incurred by the government with the objective of social welfare. It is also called public investment. The autonomous investment is the investment which is done for the sake of new inventions in techniques of production.

Derived investment is the investment undertaken in capital equipment which is induced by increase in consumption.

• This model only concentrates on the impact of the multiplier and acceleration and it ignored the role of producer’s expectations, changing business requirements and consumers preferences etc.
• It is not practically possible to compute the fact of multiplier and acceleration principle.
• It has wrong assumption of constant capital output ratio.

Also Read: What is Law of Supply?

• D N Dwivedi, Managerial Economics , 8th ed, Vikas Publishing House
• Petersen, Lewis & Jain, Managerial Economics , 4e, Pearson Education India
• Brigham, & Pappas, (1972). Managerial economics , 13ed. Hinsdale, Ill.: Dryden Press.
• Dean, J. (1951). Managerial economics (1st ed.). New York: Prentice-Hall.

Business Economics Tutorial

( Click on Topic to Read )

• What is Economics?
• Scope of Economics
• Nature of Economics
• What is Business Economics?
• Micro vs Macro Economics
• Laws of Economics
• Economic Statics and Dynamics
• Gross National Product (GNP)
• What is Business Cycle?
• W hat is Inflation?
• What is Demand?
• Types of Demand
• Determinants of Demand 
• Law of Demand
• What is Demand Schedule?
• What is Demand Curve?
• What is Demand Function?
• Demand Curve Shifts
• What is Supply?
• Determinants of Supply
• Law of Supply
• What is Supply Schedule?
• What is Supply Curve?

Supply Curve Shifts

• What is Market Equilibrium?

Consumer Demand Analysis

• Consumer Demand
• Utility in Economics
• Law of Diminishing Marginal Utility
• Cardinal and Ordinal Utility
• Indifference Curve
• Marginal Rate of Substitution
• Budget Line
• Consumer Equilibrium
• Revealed Preference Theory

Elasticity of Demand & Supply

• Elasticity of Demand
• Price Elasticity of Demand
• Types of Price Elasticity of Demand
• Factors Affecting Price Elasticity of Demand
• Importance of Price Elasticity of Demand
• Income Elasticity of Demand
• Cross Elasticity of Demand
• Advertisement Elasticity of Demand
• Elasticity of Supply

Cost & Production Analysis

• Production in Economics
• Production Possibility Curve
• Production Function
• Types of Production Functions
• Production in the Short Run
• Law of Diminishing Returns
• Isoquant Curve
• Producer Equilibrium
• Returns to Scale

Cost and Revenue Analysis

• Types of Cost
• Short Run Cost
• Long Run Cost
• Economies and Diseconomies of Scale
• What is Revenue?

Market Structure

• Types of Market Structures
• Profit Maximization
• What is Market Power?
• Demand Forecasting
• Methods of Demand Forecasting
• Criteria for Good Demand Forecasting

Market Failure

• What Market Failure?
• Price Ceiling and Price Floor

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Did we miss something in Business Economics Tutorial? Come on! Tell us what you think about our article on Business Cycle | Business Economics in the comments section.

• What is Inflation?
• Determinants of Demand

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ECONLIB Guides

Business Cycles

A High School Economics Guide

Definitions and basics.

Business Cycles , from the Concise Encyclopedia of Economics

The United States and all other modern industrial economies experience significant swings in economic activity. In some years most industries are booming and unemployment is low; in other years most industries are operating well below capacity and unemployment is high. Periods of economic expansion are typically called booms; periods of economic decline are called recessions or depressions. The combination of booms and recessions, the ebb and flow of economic activity, is called the business cycle….

Intro to Business Fluctuations at Marginal Revolution University

Recessions , from the Concise Encyclopedia of Economics

One of the most popular definitions of recessions is that they are periods when real gross national product (GNP) has declined for at least two consecutive quarters. In 1990, real GNP declined between the third and fourth quarters and again between the fourth quarter of 1990 and the first quarter of 1991. Hence, there is general agreement that a recession did occur….

In the News and Examples

The Business Cycle Video and Quiz , at EconEdLink.

This video teaches the concept of the business cycle. The pattern in which economies have periods of recession and then also periods of economic expansion or recovery is known as the business cycle. Play the Kahoot! game to test your skills! This multi-player quiz game reviews the concepts discussed in the video.

Cathy O’Neil on Wall St and Occupy Wall Street . EconTalk podcast episode, February 2013.

Cathy O’Neil, data scientist and blogger at mathbabe.org, talks with EconTalk host Russ Roberts about her journey from Wall Street to Occupy Wall Street. She talks about her experiences on Wall Street that ultimately led her to join the Occupy Wall Street movement. Along the way, the conversation includes a look at the reliability of financial modeling, the role financial models played in the crisis, and the potential for shame to limit dishonest behavior in the financial sector and elsewhere….

John Papola on the Keynes Hayek Rap Videos . EconTalk podcast episode, May 2011.

John Papola of Emergent Order talks with EconTalk host Russ Roberts about their collaboration creating rap videos based on the ideas of John Maynard Keynes and F. A. Hayek. Their first was “Fear the Boom and Bust” which was released January 25, 2010. This past week they released “Fight of the Century.” The latest video discusses the overarching differences between the philosophies of Keynes and Hayek and their views on whether government spending promotes recovery from an economic downturn and whether it leads to prosperity. In this conversation, Papola and Roberts discuss some of the underlying ideas in the video–whether the military spending of World War II ended the Great Depression, the debate between Malthus and Say and their influence on Keynes and Hayek, and the fundamental differences between Keynes and Hayek in how economic prosperity is created….

John Maynard Keynes , biography from the Concise Encyclopedia of Economics

Keynes’s General Theory revolutionized the way economists think about economics. It was pathbreaking in several ways, in particular because it introduced the notion of aggregate demand as the sum of consumption, investment, and government spending; and because it showed (or purported to show) that full employment could be maintained only with the help of government spending. Economists still argue about what Keynes thought caused high unemployment. Some think he attributed it to wages that take a long time to fall. But Keynes actually wanted wages not to fall, and in fact advocated in the General Theory that wages be kept stable. A general cut in wages, he argued, would decrease income, consumption, and aggregate demand. This would offset any benefits to output that the lower price of labor might have contributed.

Jeffrey Sachs on the Crisis, the Recovery, and the Future . EconTalk podcast episode, April 2013.

Jeffrey Sachs of Columbia University and author of The Price of Civilization talks with EconTalk host Russ Roberts about the state of the American economy. Sachs sees the current malaise as a chronic problem rather than a short-term challenge caused by the business cycle. He lists a whole host of issues he thinks policymakers need to deal with including the environment, inequality, and infrastructure. He disagrees with the Keynesian prescriptions for stimulating the economy and believes that the federal government budget deficits are a serious problem. The conversation closes with a discussion of the state of economics….

Lee Ohanian on the Great Recession and the Labor Market . EconTalk podcast episode, August 2012.

Lee Ohanian of UCLA talks with EconTalk host Russ Roberts about the recession, the recovery, and the state of labor market. Ohanian describes the unusual aspects of this recession and recovery in the United States as shown by the labor market and the unusual performance of hours worked, productivity, and wages. He also discusses the behavior of business investment and speculates as to why this recession and the recovery has been so different in the United States. The conversation closes with a discussion of the role of the foreclosure process in encouraging unemployment….

William Cohan on the Life and Death of Bear Stearns . EconTalk podcast episode, September 2009.

William Cohan, author of House of Cards: A Tale of Hubris and Wretched Excess on Wall Steet , talks with EconTalk host Russ Roberts about the life and death of Bear Stearns. The discussion starts with how Bear Stearns and other Wall Street firms made money and how they financed their operations. The conversation then turns to the collapse of Bear Stearns’s hedge funds in the summer of 2007 and how that collapse and the firm’s investments in subprime mortgages led to the death of the firm in March of 2008. Cohan explains the role of borrowed money in the financial crisis and Bear Stearns in particular. The conversation concludes with the incentives facing Wall Street executives and the price they paid or didn’t pay for the gambles they made with other people’s money. …

Russ Roberts on the Crisis . EconTalk podcast episode, May 2010.

Russ Roberts, host of EconTalk, discusses his paper, “Gambling with Other People’s Money: How Perverted Incentives Created the Financial Crisis.” Roberts reflects on the past eighteen months of podcasts on the crisis, and then turns to his own take, a narrative that emphasizes the role of government rescues of creditors and the incentives this created for imprudent lending. He also discusses U.S. housing policy, particularly the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac and how the government’s implicit guarantee of lenders to the GSE’s interacted with housing policy to increase housing prices. This in turn, Roberts argues, helped create the subprime market, created mainly by private investors. The episode closes with some of Roberts’s doubts about his narrative….

A Little History: Primary Sources and References

Great Depression , from the Concise Encyclopedia of Economics

The Great Depression of the thirties remains the most important economic event in American history. It caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation’s banks, businesses, and farms…. It is hard for those who did not live through it to grasp the full force of the worldwide depression. Between 1930 and 1939 U.S. unemployment averaged 18.2 percent. The economy’s output of goods and services (gross national product) declined 30 percent between 1929 and 1933 and recovered to the 1929 level only in 1939. Prices of almost everything (farm products, raw materials, industrial goods, stocks) fell dramatically. Farm prices, for instance, dropped 51 percent from 1929 to 1933. World trade shriveled: between 1929 and 1933 it shrank 65 percent in dollar value and 25 percent in unit volume. Most nations suffered. In 1932 Britain’s unemployment was 17.6 percent. Germany’s depression hastened the rise of Hitler and, thereby, contributed to World War II.

Shlaes on The Great Depression . EconTalk podcast episode, June 4, 2007.

Amity Shlaes, Bloomberg columnist and visiting senior fellow at the Council on Foreign Relations, talks about her new book, The Forgotten Man: A New History of the Great Depression. She and EconTalk host Russ Roberts discuss Herbert Hoover, Franklin Delano Roosevelt, the economics of the New Deal and the class warfare of the 1930s….

Eric Rauchway on the Great Depression and the New Deal . EconTalk podcast episode, December 2008.

Eric Rauchway of the University of California at Davis and the author of The Great Depression and the New Deal: A Very Short Introduction , talks with EconTalk host Russ Roberts about the 1920s and the lead-up to the Great Depression, Hoover’s policies, and the New Deal. They discuss which policies remained after the recovery and what we might learn today from the policies of the past. …

Robert Higgs on the Great Depression . EconTalk podcast episode, December 2008.

Robert Higgs, of the Independent Institute, talks with EconTalk host Russ Roberts about the Great Depression, the New Deal, and the effect of World War II on the American economy. Using survey results, financial data, and the pattern of investment in the 1930s, Higgs argues that New Deal policies created a climate of uncertainty that prolonged the Great Depression. Using consumption data, he argues that prosperity did not return during wartime, but rather after the war when government intervention in the economy subsided….

Hoover’s Economic Policies , from the Concise Encyclopedia of Economics

David Kennedy on the Great Depression and the New Deal . EconTalk podcast episode, August 2010.

David Kennedy of Stanford University and the author of Freedom from Fear talks with EconTalk host Russ Roberts about the Great Depression and its political and economic relevance. Kennedy talks about the economic policies of Hoover and Roosevelt, and how the historical narrative was shaped and evolved over the decades. The conversation concludes with Kennedy’s thoughts on the nature and value of history….

Douglas Irwin on the Great Depression and the Gold Standard . EconTalk podcast episode, October 2010.

Douglas Irwin of Dartmouth College talks with EconTalk host Russ Roberts about the role the gold standard played in the Great Depression. Irwin argues that France systematically accumulated large amounts of gold in the late 1920s and 1930s, imposing massive deflation on the rest of the world. Drawing on a recent paper of his, Irwin argues that France’s role in worldwide deflation was greater than that of the United States and played a significant role in the economic contraction that followed….

Thomas Rustici on Smoot-Hawley and the Great Depression . EconTalk podcast episode, January 2010.

Thomas Rustici of George Mason University and author of Lessons from the Great Depression talks with EconTalk host Russ Roberts about the impact of the Smoot-Hawley Act on the economy. The standard view is that the decrease in trade that followed Smoot-Hawley was not big enough to be a significant contributor to the Great Depression. Rustici argues that this Keynesian approach that looks at aggregate spending misses a crucial mechanism for understanding the impact of Smoot-Hawley. Rustici focuses on the impact of Smoot Hawley on bank closings and the money supply. Smoot-Hawley launched an international trade war that reduced world trade dramatically. This had large concentrated regional effects in the United States and around the world in areas that depended on trade. Those were the areas where the first banks collapsed, contracting the money supply via the fractional reserve banking system. Rustici argues that the Keynesian indictment of the price system ignores the policy failures that destroyed the institutions that make the price system work….

John Nye on the Great Depression, Political Economy, and the Evolution of the State . EconTalk podcast episode, September 2009.

John Nye of George Mason University talks with EconTalk host Russ Roberts about the Great Depression, the evolution of the State, and attitudes people have toward free markets. Nye argues that support for modern capitalism is fragile because people have trouble trusting the market process which is based on anonymous exchange with strangers. So when a crisis comes, it leads to demands for a larger role for top-down decision making. Nye sees the Great Depression as part of a larger public disillusionment beginning in World War I….

Advanced Resources

Milton Friedman on Money . EconTalk podcast episode, August 28, 2006.

Russ Roberts talks with Milton Friedman about his research and views on inflation, the Federal Reserve, Alan Greenspan and Ben Bernanke, and what the future holds….

Robert P. Murphy. The Importance of Capital in Economic Theory . Econlib, May 5, 2014.

Although capital plays a central role in economic theory and in the world, many economists have historically given it insufficient attention. Even economist Piketty’s bestselling book explicitly devoted to capital still relies on a very simplistic conception of capital as a single aggregate. A proper appreciation of the heterogeneous structure of capital shows the weakness in standard theoretical approaches, which employ “simplifications for analytical convenience” that actually obscure the economic reality.

Richard Fisher on Too Big to Fail and the Fed . EconTalk podcast episode, December 2013.

Richard Fisher, President of the Federal Reserve Bank of Dallas, talks with EconTalk host Russ Roberts about the problems with “too big to fail”–the policy idea that certain financial institutions are too large to face the bankruptcy or failure and need to be rescued or bailed-out. Fisher argues that “too big to fail” remains a serious problem despite claims that recent financial regulation has eliminated it. Fisher discusses various ways to deal with too-big-to-fail, including his own preferred policy. The last part of the conversation deals with quantitative easing and monetary policy during the crisis….

John Taylor on Rules, Discretion, and First Principles . EconTalk podcast episode, April 2012.

John Taylor of Stanford University’s Hoover Institution talks with EconTalk host Russ Roberts about his new book, First Principles: Five Keys to Restoring America’s Prosperity . Taylor argues that when economic policy adhere to the right basic principles such as keeping rules rather than using discretion, then the economy thrives. Ignoring these principles, Taylor argues, leads to bad economic outcomes such as recessions, inflation, or high unemployment. Taylor illustrates these ideas with a whirlwind tour of the last half century of American economic policy and history. The focus is on monetary and fiscal policy but Taylor also discusses health care reform and other policy areas. The conversation closes with a look at the likelihood that economic policy will change dramatically after 2012….

Scott Sumner on Monetary Policy . EconTalk podcast episode, November 2009.

Scott Sumner of Bentley University and the blog The Money Illusion talks with host Russ Roberts about monetary policy and the state of the economy. Sumner argues that tight money in late 2008 precipitated the recession. He argues that the standard measures of monetary policy–growth in reserves or the Federal Funds rate–are misleading. Sumner suggests focusing instead on nominal GDP. He argues that the failure of the Fed to counter the drop in nominal GDP in late 2008 intensified the recession and points to the growth in unemployment. Along the way he discusses the Taylor Rule and other monetary prescriptions….

Charles Calomiris on Capital Requirements, Leverage, and Financial Regulation . EconTalk podcast episode, March 2012.

Charles Calomiris of Columbia University talks with EconTalk host Russ Roberts about corporate debt, capital requirements, and financial regulation. This is an in-depth conversation about how debt works on a firm’s balance sheet and the risks that debt vs. equity pose for the survival of the firm. Calomiris applies these insights to financial regulation–how it works in practice and the firm’s choices in responding to various interventions including bailouts and capital requirements. The conversation closes with a discussion of some of the government interventions in the financial crisis….

Nassim Nicholas Taleb on Black Swans, Fragility, and Mistakes . EconTalk podcast episode, May 2010.

Nassim Taleb, author of The Black Swan and Fooled by Randomness , talks with EconTalk host Russ Roberts about his latest thoughts on robustness, fragility, debt, insurance, uncertainty, exercise, moral hazard, knowledge, and the challenges of fame and fortune….

Vincent Reinhart on Bear Stearns, Lehman Brothers, and the Financial Crisis . EconTalk podcast episode, March 2011.

Vincent Reinhart of the American Enterprise Institute talks with EconTalk host Russ Roberts about the government interventions and non-interventions into financial markets in 2008. Conventional wisdom holds that the failure to intervene in the collapse of Lehman Brothers precipitated the crisis. Reinhart argues that the key event occurred months earlier when the government engineered a shotgun marriage of Bear Stearns to JP Morgan Chase by guaranteeing billion of Bear’s assets and sending a signal to creditors that risky lending might come without a cost. Reinhart argues that there is a wider menu of choices available to policy makers than simply rescue or no rescue, and that it is important to take action before the crisis comes to a head….

Robert Shiller on Housing and Bubbles . EconTalk podcast episode, September 2008.

Robert Shiller of Yale University talks with EconTalk host Russ Roberts about the current housing mess and related financial market problems. Shiller argues that the decade-long run up in housing prices was a bubble where speculative fervor outweighed any economic fundamentals. He also discusses the genesis of the Case-Shiller housing price index and his idea for how it might be used to reduce risk in the mortgage market. Note: This podcast was recorded on September 5, 2008, days before Secretary of the Treasury Paulson put Fannie Mae and Freddie Mac into conservatorship. Upcoming in the next two weeks is a podcast with Arnold Kling focusing on the role of Fannie and Freddie and the mortgage market….

Arnold Kling on Credit Default Swaps, Counterparty Risk, and the Political Economy of Financial Regulation . EconTalk podcast episode, November 2008.

Arnold Kling of EconLog talks with EconTalk host Russ Roberts about the role of credit default swaps and counterparty risks in the current financial mess. The conversation opens with the logistics of credit default swaps and counterparty risks and moves on to their role in the financial collapse. The conversation closes with a discussion of the political economy of pending financial regulation….

Related Topics

Roles of Government

Aggregate Demand

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Being managed out at work is a type of bullying. This is what to do about it, according to a lawyer.

• Workplace bullying erodes confidence and mental health, impacting personal and professional lives.
• One subtle sign of workplace bullying is being "managed out" by your superior.
• Anti-bullying lawyer Stefanie Costi shares how you know it is happening to you.

Stefanie Costi left her job as a senior partner at a law firm with PTSD .

It took her two years to talk about it, but when she finally did, her post on LinkedIn blew up.

It reached 1.2 million people, and she received more than 2,000 messages thanking her for speaking out.

"So I knew that it was universal across all different industries," Costi told Business Insider.

She continued advocating and sharing more posts about how toxic dynamics manifest in the workplace , such as being "managed out" by your superior.

Now, she has 48,000 followers and a TED Talk in the works.

Workplace bullying is a critical issue, Costi said, because it impacts someone's entire life.

"When people are bullied at work, it erodes their confidence, damages their mental health, and can even spill over into their personal lives," she said. "Addressing it is essential to fostering work environments where people can thrive, innovate and feel valued, rather than being undermined and diminished."

Toxic cycles are perpetuated

According to a landmark survey in 2019 of 7,000 lawyers across 135 countries by the International Bar Association , bullying is rife in the legal profession, particularly in Canada, South Africa, Australia, and New Zealand.

Related stories

The survey found that around one in two female and one in three male respondents said they had been bullied at work.

Costi said she thinks these toxic cycles persist because "humans are flawed."

"When you put 50 humans in a workplace, all from different walks of life, all raised very differently, all with different attitudes on things, you can't expect it to go swimmingly all the time," she said.

The problem also perpetuates if leaders ignore it because "monkey see, monkey does," Costi added.

"So if someone is saying that bullying is the way to survive and senior people are doing it, then you better believe that the young folk are going to learn how to do it too," she said. "A fish rots from the head down."

Costi said many signs of workplace bullying can be subtle, but they tend to be consistent. They can include being excluded from meetings or social gatherings after work, constantly criticized, micromanaged, or given unrealistic deadlines.

"These actions, when persistent, create a hostile environment that gradually erodes your confidence and well-being," said Costi. "If you start to feel anxious about going to work, it's a big red flag."

A workplace bully pushes people out

Another sign of bullying is the act of being managed out, which is when an employee is systematically pushed out of their role through insidious tactics — being given impossible tasks, receiving unfair performance reviews, or being excluded from key projects.

"You're being managed out of your job if everything you do is suddenly micromanaged," Costi said. "Or you're being given impossible tasks with unrealistic deadlines, or your boss doesn't give you the tools to do your job, or you are excluded from important meetings, or your achievements are constantly ignored or downplayed, or your position or similar roles are advertised externally."

The result is the employee feels "demoralized," Costi said, and questions their own competence.

"Which is precisely the outcome the bully desires," she said. "It's a manipulative strategy that slowly forces the victim to leave the organization 'voluntarily,'"

Essentially, a toxic boss will opt to push out the employees they no longer want around rather than learn to work with them.

To do this, Costi said they make the workplace miserable by never providing help or praise, dismissing achievements, and making their reports feel guilty for asking for basic things such as guidance or advice about career progression.

Costi said they also openly play favorites and move goalposts, leaving their targeted employees confused and frustrated.

"It just escalates so that those subtle signs turn into more overt signs," Costi said. "What happens is people's confidence is eroded over time, so it's like a death by a thousand cuts."

This slow drip of mistreatment over time is so damaging because it leads the victims to blame themselves. It's hard for them to vocalize anything tangible that is being done to them, so they internalize it.

It attacks "the core of who they are," Costi said, which can lead to chronic stress, anxiety, depression, and a significant loss of self-esteem.

"Over time, this toxic environment creates a sense of helplessness and hopelessness, making it hard for the person to see a way out," she said. "The psychological damage can extend far beyond the workplace, affecting relationships, sleep, and overall quality of life."

For many, the only obvious option may be to leave. Costi said this isn't the only choice people have, but it is "the healthiest one."

"Especially if the toxicity is pervasive and leadership is unresponsive," she said.

"However, before making that decision, it's crucial to document your experiences, seek support from trusted colleagues or mentors, and explore all avenues for resolution, such as HR or legal advice," Costi added.

"In some cases, standing up to the toxicity can lead to change, but it requires a great deal of courage and support," she said. "Ultimately, your mental and physical health should be the top priority."

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