The business cycle

Economic activity is the amount of production taking place. Over time, the level of economic activity in a country tends to move up and down in a business cycle.

Economic activity in a country tends to move up and down in a business cycle
  • In a downturn or slump output falls and many businesses shed staff because sales are falling. The economy experiences a recession.
  • In an upturn or boom, businesses increase output and hire more staff to keep up with extra demand. The economy experiences economic growth.

The impact of a recession varies from business to business. Firms making premium and luxury products are hit hard by any downturn because customers often cut back on non-essentials first. Businesses with large debts can find it hard to meet interest payments when sales fall.

However, a recession makes it easier for a business to recruit new staff in readiness for any upturn in economic activity.

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