Business Cycles What is a downturn

Economic phases

(Economic fluctuations), economic development

the different sections of the undulating movement of economic development (Economic fluctuations), which together form an economic cycle (see there). Four economic phases can be distinguished: upswing (recovery, expansion), boom (boom, prosperity), downswing (recession) and low (crisis, depression).

Decisive influence on the Business cycle have household demand, corporate investment, government income and expenditure, and imports and exports. Changes in the aforementioned variables have a positive effect on the business cycle on the one hand, i.e. have a stimulating effect on the economy and thus generate an economic upswing. On the other hand, changes in these factors can also have a negative impact on the business cycle, dampen the business cycle and trigger or intensify a downturn. A positive, invigorating effect on the economic trend have z. This includes, for example, an increase in investment, higher household demand, increased public spending, and rising exports and lower imports. A negative, dampening influence on the economic development have z. For example, falling demand from private households, declining investment activity, reduced government spending and higher revenues due to rising taxes and falling exports with increasing expenditure on imports.

The economic effects of changes in investments, government spending as well as exports and imports are intensified by the multiplier effect (see there), both in their stimulating effect and in their dampening effect on the business cycle. With regard to the effect of private demand on the business cycle, the acceleration principle (see there) must also be observed. Psychological aspects such as optimistic or pessimistic attitudes and future expectations also influence the business cycle.

Duden Wirtschaft from A to Z: Basic knowledge for school and study, work and everyday life. 6th edition. Mannheim: Bibliographisches Institut 2016. Licensed edition Bonn: Federal Agency for Civic Education 2016.