The business cycle or economic cycle is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms), and periods of relative stagnation or decline (contractions or recessions).

Used in the indefinite sense, a business cycle is a period of time containing a single boom and contraction in sequence.

Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity can prove unpredictable.

A boom-and-bust cycle is one in which the expansions are rapid and the contractions are steep and severe.

History

Theory

The first systematic exposition of periodic economic crises, in opposition to the existing theory of economic equilibrium, was the 1819 Nouveaux Principes d'économie politique by Jean Charles Léonard de Sismondi. Prior to that point classical economics had either denied the existence of business cycles, blamed them on external factors, notably war, or only studied the long term. Sismondi found vindication in the Panic of 1825, which was the first unarguably international economic crisis, occurring in peacetime.