The business cycle (also called the trade cycle) refers to the natural ups and downs of an economy over time. It describes how economic activity moves between periods of growth and periods of decline.

There are four main phases of the business cycle:

• Boom: The economy is at its strongest point. People are spending, businesses are growing, and unemployment is low. However, prices may rise quickly.
• Recession: Economic activity slows down. GDP falls, businesses produce less, and unemployment tends to rise.
• Trough: This is the lowest point in the cycle. Output and employment are at their weakest levels before the economy starts to improve.
• Recovery: The economy begins to grow again. Confidence returns, investments increase, and more people find jobs.

Governments use automatic stabilisers, such as unemployment benefits and tax systems, to help smooth out these extreme changes. The cycle is often caused by changes in consumer demand, business investments, or unexpected global events like financial crises.