9.2.3—Business cycle

The business cycle is the pattern of expansions and contractions in economic activity around a longer-run trend. Phases may include recovery, expansion, peak, slowdown and recession, but the labels are conventions.

Demand, financial conditions, confidence, inventories, external shocks and policy can amplify cycles. A recession is a period of falling or unusually weak activity; it is not defined solely by one fixed rule in every context.

A credit boom raises spending and employment, then a financial shock cuts investment and demand, creating a downturn below the trend path.

The cycle is not perfectly regular or predictable, and a short slowdown need not meet every definition of recession.