The economy is not static; dynamics occur all the time. Both developed and developing economies experience economic ups and downs. Sometimes, there are shocks and shifts or changes in the economy, which cause fluctuations. Fluctuations in an economy are natural. These fluctuations can occur on a small and short scale and can also occur on a large scale and last for several periods. These fluctuations can also form a cycle, known as the business cycle. In addition to the business cycles, there are also financial cycles.
Fluctuations in an economy can appear in various forms. These fluctuations can be erratic up-and-down movements and can also form a pattern known as a business cycle. The business cycle is characterised by an expansion period up to reaching the peak, a turning point, and a contraction period (experiencing a recession) until reaching the trough (bottom), and then experiencing it again. One cycle is the period from a peak to the next peak or from a trough to the next trough. Meanwhile, the period from a base to a peak or from a peak to a base is named one phase. In recent decades, the period of the business cycles has shortened, among others, it can be seen from the economy experiences crises more often.
The business cycle seems to be a certainty for an economy. Suppose the economy experiences high economic growth. Rising incomes, coupled with high consumer confidence, drive greater demand. The firm profit also increases. These conditions continue until the economy reaches its peak. Under these conditions, the economy overheats, characterised by high inflation rates, increased risks, and fierce competition. As a result, demand falls, accompanied by declining production due to falling firm profit, and the economy experiences a recession.