Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 1: Principles of financial trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 2: Principles of Financial Planning and Cash Flow in Financial Trading
Skillsfirst Level 3 Certificate in Introduction to Financial Trading (RQF) - UNIT 3: Understanding financial trading techniques

THE BUSINESS CYCLE

Business cycles are recurring changes in the level of business and economic activity over time. This business activity is measured via measures of Real Income specifically Real Gross Domestic Product (GDP). Quite often these cycles occur because spending in the economy (as measured by Real GDP) differs from the ability of the economy to produce goods and services. A prolonged period of growth in spending that exceeds the growth rate in output will lead to tight factor markets.

The economy may transition into a period of decline (recession) simply because the current rate of spending cannot continue.

One business cycle is defined as a period of economic decline or a contraction followed by a longer expansionary period.

These cycles occur at regular intervals in a market economy as the rate of real economic growth exceeds the growth in the potential of the economy to produce goods and services. As resource limits are reached in an expansion credit is restrained, the cost of borrowing increases and resource prices begin to rise. All of these factors put a squeeze on the profit margins of business firms which often leads to a curtailment of business activity.

Recessions may also occur or be prolonged as consumers and producers become more pessimistic about future economic events. This pessimism may lead to a decline in both consumption and investment spending resulting in an increase in inventory levels. Businesses respond to this unanticipated increase in inventory through cutbacks in production the corresponding layoffs of workers.

Business cycles are characterized by expansions or continued increases in Real GDP followed by contractions or a decline in Real GDP. These contractions or recessions are officially defined as two or more quarters of negative growth in Real GDP. A full business cycle is measured from the peak of one cycle to the peak of the following cycle.

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