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The Business Cycle

Part 2: Specifics

Economists used to think that business cycles had specific lengths for their various parts. Whether that was ever the case, economists don't think that anymore. With a country's economic needs more and more dependent on international supply and demand, economists are finding it more and more difficult to predict a large number of things, including the length of a contraction or expansion.

The stages of business cycles are punctuated by data and behavior across many economic fields. Rises in stock prices and wages usually accompany an expansion, as does a rise in prices in general. (If prices rise too quickly, economists get worried about inflation.) A contraction, on the other hand, can bring sharp drops in stock prices, business loans, and increases in the number of people out of work. (This is economists' other chief worry: unemployment.)

The severity of a contraction can also bring about greater government intervention into the country's economy. As stock prices fall and unemployment grows and consumer confidence plummets, the government will seek to turn the economy back toward expansion, introducing measures designed to help business and workers. A prime example of this was the New Deal offered by President Franklin D. Roosevelt. A massive set of economic incentives, the New Deal helped the American economy get back on its feet after the Great Depression.

On the other hand, when things are going well economically and an expansion is chugging right along, the government will be hesitant to do much to the economy, preferring to "not mess with success."

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