In the y-axis is measured the level of real output or Gross Domestic Product (GDP).
The business cycle, also known as the economic cycle or trade cycle consists of expansions that take place at the same time in many economic activities, followed by recessions, contractions and equally general recoveries that converge in the expansion phase of the following cycle; the sequence of changes is recurrent but not periodic.
The phases of business cycles can be divided into:
1. Prosperity: It is the maximum point of the economic cycle. An increase in the price level is presented unevenly due to the different changes in costs. These prices also depend on an increase in the volume of money in circulation.
2. Recession: It is one that covers a relatively short time, is characterized by marking a point of flexion where the forces of production are contracted, there are also tensions in the banking system and in the settlement of loans starting a price decline.
3. Shrinkage: It is the minimum point of a business cycle, where there is a drop in productivity in an unequal manner which causes a deformation in the cost-price ratio.
4. Recovery: A harmonization feature of economic activity will begin satisfactorily; it will tend to full employment (that all factors of production are occupied), with an increase in production, wages, prices and interest rates.
