Us have a look at different points of view on its definition

The business cycle is a well-observed economic phenomenon, though it often occurs on a generally

Upward growth path and has a variable time span, typically of the order of five years. It h s

Been a matter of government policy in Western economies to dampen the amplitude, that is, the

Height of the peaks and depths of the troughs, of the cycle so that the trend path of output is followed

Without much fluctuation.

Several suggestions have been put forward as to the cause of cycles. The best known, developed

by Samuelson*, Hicks**, Goodwin***, Phillips**** and Kalecki***** in the 1940s and 1950s, combines

The multiplier with the accelerator theory of investment (accelerator—multiplier model), hi

Certain cases, investment can be positively related to output one period back, and negatively relat

Ed to output two periods back. This can cause an oscillating path for income. This account quite

plausibly requires that investment is based upon companies’ expectations of future growth; but

Rather less plausibly relies upon these expectations being drawn from a naive extrapolation of what

Happened in the last period.

Friedman, in his analysis of US monetary history, notes the correlation between money supply

And economic activity and suggests that the business cycle is a monetary phenomenon. Several