The economic cycle, or business cycle, is a combination of recessions and expansions, the decrease and increase in economic activities. With globalisation, the same periods of the cycle are often shared by more countries.
Each of the economic cycles are unique, they differ in their length, depth of the decline or strength of prosperity. In spite of this fact, there are two basic phases common to all business cycles, expansion and recession, with the peak as the upper turning point and the trough as the lower turning point of the model. In general, the cycle tends to follow the sine curve where the amplitude is the range between the peak and trough values.

Each phase of the cycle can be characterised by changing employment, industrial productivity and interest rates. The cycle usually lasts 2 – 10 years but sporadically, longer periods of the cycle are recorded.

The peak (or boom) of the business cycle can be depicted by

• low unemployment;
• high production – economy works at its maximum, all capital and labour resources are fully engaged in production;
• high interest rates;
• rising wages.

A period of recession follows with typical features such as

• output reduction;
• rising unemployment;
• falling interest rates
• corporate profits turn down
• business activity slows down

The recession continues until it reaches the trough, the bottom of the business cycle where:

• production is low;
• unemployment is high;
• interest rates are low.

After a short period in the trough, the economy starts growing again in a period of expansion (or recovery):

• corporate profits are positive;
• production grows;
• utilization of resources grows;
• interest rates are still low.

The above represents a simplified view of the economic cycle because an economy never really grows smoothly and often experiences temporary declines and troughs. Moreover, business cycles are always associated with economic policies that have a significant effect on the economy.

Unemployment
Unemployment is one of the most significant factors connected to business cycles and its rate closely depends on the phase of the business cycle. The unemployment rate is usually expressed as the number of unemployed people compared to the total labour force.
Economic theory identifies three kinds of unemployment:

• frictional; results from permanent movement of people who move from one place to another, who want to change their jobs or who finish schools and search for their first jobs.
• structural; results from the inbalance between the supply and demand of labour force due to changes in the economy
• cyclical; depends on the phase of the economic cycle.

Unemployment affects people in two basic ways, economically as incomes decrease while output is lost and socially as it reduces the self-esteem of the unemployed and leads to the deterioration of both their psychological and physical health (alcohol intake, heart disease, suicide attempts).