The business cycle has four phases:
  • Peak
  • Recession
  • Trough
  • Recovery



During the peak phase, employment is high. Wages are high. People buy more. The prices of consumer goods increase. Consumer confidence is high.
If the GDP remains in decline for two or more consecutive quarters (three-month periods), we enter a period of recession. Unemployment increases. Wages remain stagnant. Spending decreases. Production decreases. There is a general slowdown in economic activity. The GDP declines.
The trough phase of the business cycle is the low point. The unemployment rate is high. People who are employed become cautious about spending money. Because sales are low, businesses hesitate to make investments. Economic activity is at a low level.
Eventually spending becomes necessary. Businesses must replenish their inventories and machinery must be repaired or replaced. Gradually, the economy recovers. Employment increases. This is the recovery phase .