Understanding How People and Businesses Act During the Business Cycle

The business cycle has different phases, and during each phase, people and businesses often react in different ways. Let’s break it down:

1. Expansion Phase:

   • Consumers: People feel more confident about money. They spend freely and might even borrow money.
   • Businesses: Companies invest in new projects, hire more workers, and grow their businesses.

2. Peak Phase:

   • Consumers: People keep spending, but they might start to worry about rising prices.
   • Businesses: Companies usually see high sales, but they may hesitate to invest more money because they fear a slowdown.

3. Recession Phase:

   • Consumers: People cut back on spending. They focus on buying only what they really need and save more money.
   • Businesses: Companies spend less on new projects, may lay off workers, and try to lower costs.

4. Trough Phase:

   • Consumers: People stay careful with their money, but they might slowly start wanting to spend again.
   • Businesses: Companies often hold off on making big decisions and wait for signs that things are getting better.

By understanding these phases, we can see how people and businesses adapt to changes in the economy.