Business Cycles Business cycles are the "ups and downs" of economic activity, defined in terms of periods of expansion or recession. “Business cycles occur because disturbances of various types push the economy above or below full employment. Inflationary booms can be generated by surges in public or private spending (Roomer, Christina D).” The phases of the business cycle are the Prosperity Phase: Expansion or Boom, in which there is an increase in production and prices and a lowering of interest rates. Recession phase: from prosperity to recession, where there is a decline in prices and activity with an increase in unemployment and interest rates. Depression phase: Contraction of the economy, usually starting with capital markets encountering bank and business failures. Recovery phase: from depression to prosperity (lower turning point), which begins when stocks recover from falling prices and incomes. The prosperity phase of a business cycle is the high point of the economy. It is also called the peak. At this point the economy's full employment, i.e. all employed people and production, are at their highest level. Since there is no work or productive capacity left, there is no further economic growth. “The characteristics of prosperity are a high level of production and trade, a high level of effective demand, a high level of income and employment, rising interest rates, inflation, large expansion of bank credit, entrepreneurial optimism, and a high level of MEC (Marginal Efficiency of Capital) and Investment (Brian Bass).” The level of production is maximum and there is an increase in GNP (Gross National Product). On the other hand, the recession phase is when economic activity slows down. At this stage production, investment, trade and... middle of paper... decrease (fluctuate) recurring global economic activity (in most economic sectors) in a given period. These do not present themselves in the same way in different periods, since their intensity, duration or behavior may vary, but they are all characterized by phases of rise and fall. Works Cited Growth and Production, Gross Domestic Product Margaret Jacobson, Filippo Occhino. Economic Trends Feb 2013 p3(2) (568 words) Romer, Christina D. “Business Cycles.” : The concise encyclopedia of economics. Liberty Fund, Inc., nd Web. February 25, 2014.Gaurav Akrani, Gaurav. "4 phases of the business cycle in economics with diagram." 4 phases of the business cycle in economics with diagram. Kanlyan City Life, June 18, 2011. Web. February 26, 2014. Bass, Brian, and Demand Medina. “What is prosperity in the business cycle?” Small business. HearstNewspapers, LLC and Web. February 26. 2014.