Trade Cycles-Phases

Textile mills that were hiring in one year lay off workers a few years later, then rehire once orders pick up again — not because anyone made a single bad decision, but because economies move in waves. Economists call that wave a trade cycle, and being able to name which phase of it an economy is in is one of the oldest tools of macroeconomic analysis.

In two minutes

A trade cycle (or business cycle) is the recurring, wave-like fluctuation of economic activity — output, employment, prices and income all rising and falling together — through four broad phases: prosperity, recession, depression and recovery.

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