Which are the four phases of the business cycle?

The four phases of the business cycle consist of expansion, peak, contraction, and trough. This framework is a widely recognized way to categorize the cyclical movements in the economy.

• Expansion refers to a period where the economy is growing, characterized by increasing employment levels, production, and consumer spending. During this phase, businesses invest more in capital and hire additional workers to meet rising demand.

• The peak is the point at which the economy reaches its highest level of activity before a downturn begins. This period often sees the highest levels of GDP, employment, and consumer confidence.

• Contraction follows the peak and represents a decline in economic activity, which can lead to recessions if prolonged. During contraction, businesses may cut back on production and employment, resulting in decreased consumer spending and investment.

• Trough is the lowest point of the business cycle, marking the end of the contraction phase. At this stage, economic activity is at its slowest, but it sets the stage for recovery and subsequent expansion.

This understanding of the business cycle is crucial because it helps policymakers, businesses, and investors make informed decisions based on where the economy is in its cyclical pattern. The other options listed, while they may relate to economic conditions, do not accurately define