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What is the significance of a business cycle?

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A business cycle is the fluctuations in a nation’s overall economic activity. A cycle refers to many economic activities that encounter concurrent recovery and expansion, then contraction, recession, and recovery again. This series of fluctuations will occur time and again and from time to time, the duration of which range from one year to ten years. A business cycle covers an expansion (i.e. the period from the trough to the peak), a contraction (i.e. the period between the peak and the trough). In practice, expansion and contraction should last for at least five months, and the entire cycle takes at least 15 months to complete.

An business cycle can further be divided into two concepts, namely, classic cycle and growth cycle. The former refers to fluctuations in levels of values of economic activates; the latter cyclic fluctuations non-inclusive of long-term trend. Taiwan and OECD both adopt the concept of “growth cycle”.

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