Q Why Does the Business Cycle Matter to Me? Have you ever thought about the economy? Do you know how to evaluate the economic performance of your country based on the current status of the business cycle? Vitalii Vodolazskyi/Shutterstock.com Understanding the business cycle as part of a country’s economic performance is an important process for consumers to understand when deciding to spend or save their money. Debates about the state of the economy are often center stage in national news and politics. The business cycle refers to the contractions and expansions in the economy that happen over time and may impact a consumer’s willingness to buy products and services: 1. Contractions are the periods of economic downturn that include recession, depression, and the trough. Recession occurs after two or more consecutive three-month periods of decline in a country’s gross domestic product (GDP). Recessions may last for a few months to years. A depression occurs when a recession is severe and long lasting. The trough is considered the bottom of a contraction and is often the turn-around period that leads back to expansions. 2. Expansions are the periods of economic growth that include recovery and prosperity. Recovery occurs following a contraction and includes increasing employment. Consumers tend to spend more money in a recovery. Prosperity, also known as the peak-period, occurs when the economy is at its highest point and consumers are the most willing to buy products and services. Refer to the following scenario to see why the business cycle matters to you and the world around you. Imagine you have just graduated from school and are currently working in a new job. You received $1,000 as a graduation gift from your aunt, who is very proud of you. You are trying to decide if you will spend or save the money and want to complete some research to help you make that decision. While it is tempting to spend it immediately, you want to understand if you should save your money or not and you want to make that decision based on the economy. During your research, you find several reputable reports that predict an economic expansion will take place in the upcoming months. Why Does the Business Cycle Matter to Me? What do you decide to do with your money?