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Business Cycle

Like human nature, the economy has its ups and downs. At times the economy can grow robustly, with household income rising, consumers happily spending, and companies hiring and expanding their business. However, there also are periods when the economy looks tired, with growth barely perceptible. There's less consumer shopping and little, if any, new business investment under way. In the most extreme case, the economy actually shrinks, which is what happens in a recession. Over time, however, recessions give way to a fresh round of economic activity. These swings, from good times to awful times and then eventually back to good times again, are roughly what we mean by a business cycle.

Why does the economy have such cycles? Why not have steady, continuous, non-stop growth? After all, that should make everyone happy.


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