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Money and Finance

Economic Cycle or Business Cycle

The economies of countries throughout the world are always changing. Sometimes they are growing and everything is great, but at other times they are shrinking and times are tough.

All economies are going through a constant cycle of changes. This cycle can be described by a series of stages. You've probably heard people say things like "the economy is booming" or "we are in a recession." These are some of the various stages of the economic cycle. It is sometimes called the business cycle.

Stages of the Economic Cycle

We will describe four of the basic stages of the economic cycle below: 1) expansion, 2) slowdown, 3) recession, and 4)recovery. The current state of most economies can be described by one of the stages below.


Expansion is a time of strong economic growth. People tend to be the most optimistic during the expansion stage. Some economists called the expansion stage the "boom" stage. Indicators of the expansion stage include:

At some point the rapid growth of the expansion stage has to come to an end. When the economy starts to slow, but is still growing, this is called the slowdown stage. Sometimes economists call a slowdown a "downturn" in the economy. Indicators of an economic slowdown include: Recession

A recession is when the economy stops growing. Economists define a recession as two quarters in a row where the GDP (Gross Domestic Product) gets smaller. A lot of times a recession is started by some sort of major negative event. It could be something like a number of banks failing, a stock market crash, or even a terrorist attack (like in the 2001 9-11 attack). Indicators of an economic recession include:

When the economy starts to come out of a recession and begins to improve, this is called the recovery stage. Indicators of an economic recovery include: How long does each stage of the cycle last?

There is no set time on how long each stage will last. Sometimes countries languish for years in a very slow recovery. Sometimes they experience a quick expansion and then immediately enter into a slowdown. In some cases, an economic cycle can skip the recession stage altogether and just enter into a long slowdown state. Economists call this a "soft landing."

Learn More about Money and Finance:

Personal Finance

Filling out a Check
Managing a Checkbook
How to Save
Credit Cards
How a Mortgage Works
How Interest Works
Insurance Basics
Identity Theft

About Money

History of Money
How Coins are Made
How Paper Money is Made
Counterfeit Money
United States Currency
World Currencies
Money Math

Counting Money
Making Change
Basic Money Math
Money Word Problems: Addition and Subtraction
Money Word Problems: Multiplication and Addition
Money Word Problems: Interest and Percent


How Banks Work
How the Stock Market Works
Supply and Demand
Supply and Demand Examples
Economic Cycle
Adam Smith
How Taxes Work
Glossary and Terms

Note: This information is not to be used for individual legal, tax, or investment advice. You should always contact a professional financial or tax advisor before making financial decisions.

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