Macroeconomics Business Cycle in US since 1949

Introduction

The macroeconomic business cycle represents the ups and downs of economic activity that is seen or observed in the price of a domestic product. The fundamental characteristic of an economy are in constant change form. For this reason, the study of the economic cycle is the study of the dynamic economy that highlights the changes in economy over time. Business cycles are fluctuations in the general level of economic activity that occur in all nations that organize their production output in product or service forms. Business cycle is the cycle of an economic activity as a whole and refers to changes in total economic activity, total production, and total employment. In general, it shows the sequential changes in the major economic aggregates of the country's economic activity.

The economic business cycle is a continuous phenomenon, which is considered as cumulative in nature. The sequences of expansions, breaks, contractions and recoveries are recurrent, but not periodic. This means that the business cycles are repeated over time, but with free rhythm. This feature allows distinguishing the changes in the cycle from other seasonal fluctuations.

Parts of Business Cycles

The macroeconomic business cycle is a set of economic phenomena that occur in a given period. Business cycle phases represent the changes in the economic activity.  The variation of magnitude representative is the individual cycles or specific set of cycles within aggregated business cycle of economy. The phases of business cycles can be divided in four stages. These stages are prosperity (peak), recession, contraction (trough), and recovery (expansion) (Black, 52).

The maximum relative level of economic activity is titled as peaks or prosperity phase of business cycle. The minimum relative activity points are designated as trough or economic depression. 

Both points, peaks and troughs, are called turning points of business cycle and constitute the economic cycle or reference cycle. Business cycle is more or less regular pattern of expansion (recovery) and contradiction (recession) economic activity around a trend growth path. In a cyclical peak, economic activity is high relative to trend, and in a cyclical trough, cycle reach the low point of economic activity (NBER, 2011b). Inflation, growth and unemployment show clear cyclical patterns that impact the business cycle phases.

Boom and peak point in the cycle signifies that the activity of the business is at its maximum level. There is total employment condition in the economy. Firms should maximize their production, with relative increase in price is observed. Depression (trough) represents the lowest point of the cycle, where production and output requirement is at its minimum. Increased unemployment condition is observed in this phase. However, every depression phase is followed by the expansion stage, when business cycle begins to expand, with increase in the employment and productivity.

GDP of economy represent the most important factor that constitutes the changes in business cycle. IN this paper, real GDP has been taken as a determinant factor. Real GDP is the total value of goods and services produced by a country, regardless of inflation that occurred in the respective period. Real GDP is equal to nominal GDP deflated by the increase in the consumer ...