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Business Cycles

Business cycles are a major part of how financial gains and loses affect the lives and livelihoods of all people, starting at home, neighborhoods, towns, cities, counties, states, and countries around the whole world.

A business cycle refers to a period in which the economy goes through growth, down turns, or stagnation. These fluctuations are measured using the real Gross Domestic Product (GDP) and may shift over periods of time, 3 to 5 years, 7 to 10 years, 15 to 20 years, 50 years, 100 years, and so on and so on.

Business cycles do not fit into a predictable pattern or take place in a predictable number of years. In the past, it was thought that business cycles were predictable with regular appearances, but today, it is more common to think of business cycles as widely irregular with variations in duration.

What happens during a business cycle depends largely on how strong, or soft, the economy is, how consumers and businesses are affected, and how the general population reacts to the many forces in the financial market that dictate those cycles.

There may be long periods of economic growth, stability in the marketplace, and prosperity for most people and a general sense of well being. On the other hand, there may follow years of high inflation, recession, uncertainty in the stock market, layoffs, business failures, bankruptcies, foreclosures, and a sense of fear and foreboding.

Local, state and the federal governments can implement different methods of correction to counter the effects of a business cycle, like raising or lowering interest rates, instituting bailouts for business that are struggling or close to collapse, implementing spending programs to create jobs, cutting or raising taxes, putting more regulations on, or deregulating, businesses.

The government can, and often do, implement any one or all of the above mentioned controls to help keep the economy in balance. Stimulus packages are often employed when the economy is stagnant, sluggish, or during periods of recession.

To speed up economic recovery, there may be interest rate cuts and/or income tax rebates given in hopes of stimulating the economy by giving consumers more money to spend.

During times of high inflation, governments may find it necessary to raise interest rates, making it more expensive for consumers to buy homes, cars, food, clothing, and other items, thereby slowing economic growth.

Economists have studied business cycles for hundreds of years to understand how governmental actions can influence market conditions and how those actions can affect and manipulate economic growth and strength and how to keep the economy at a relatively even keel and under control.

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