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PRINCIPLES OF MACROECONOMICS
Business Cycles

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A business cycle, in simple words, refers to a cycle of fluctuating levels of national
output
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If this slowdown occurs for two quarters or more, it is termed as
a recession
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Trough: when a stagnating economy starts to recover, and output starts to rise
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Peak: Economic growth slows down or stops

Recession: GDP (or growth) goes negative
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Business cycles are not regular
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Some last for a shorter
while than the others
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If people are not confident about
the current situations or if there is uncertainty, they will put off their investments and
expenditure
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Changes in demand: An increase in aggregate demand results in higher economic
activity (higher production, output, employment, incomes, profits etc) which eventually
leads to expansion and economic boom
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Macroeconomic policies: Demand side policies such as the fiscal and monetary policies
result in business cycles as they have a direct impact on aggregate demand and
expenditure
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This results in a
recession
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Trade wars: High trade restrictions can reduce earnings for a country resulting in
unemployment
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Population changes: An increase in population (especially the labour force) will result in
rising economic activity
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Financial cycles last longer
Financial cycles depend significantly on policy regimes
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GDP during the lockdowns fell at a very high level and the economy still has a long way
to go before it reaches the level It was at before the pandemic
United Kingdom presently is in a trough phase where it is trying to recover from the loss
and recession
Another significant factor that has contributed towards Britain’s recession is Brexit
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An average business cycle in the United Kingdom lasts for 62 months

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