The economic growth of an economy never runs in constant linear trajectories, but in so-called cycles. These can typically be divided into four phases.
The expansive phase is also known as the upswing and means the end of a depression. During this period there is a slow economic recovery and an increase in economic output.
The number of unemployed is falling noticeably and at the same time wages are rising. As a result, higher private consumption can be observed, which in turn leads to an expansion of production. The low interest rates also lead to increased investments, which also create new jobs and better income opportunities.
The boom describes a period of economic boom in an economy. Due to the high demand, production capacities are fully utilized and there is practically no unwanted unemployment. However, the well-paid jobs and the high demand can also lead to demand bottlenecks.
In such cases, price increases are usually the result, which in the worst case can even lead to inflation. At the same time, for the high demand, more and more investments are made. The demand for credit is increasing and, at the same time, leading to higher interest rates.
The economic downturn sets in during the recession phase. Due to the ever growing production, there is saturation on the market. Now the investments made with the help of loans are proving to be a burden for the producers, since they are no longer profitable.
It consequences Kosteneinsparungen, welche meist durch erste Entlassungen und Gehaltskürzungen realisiert werden. Dadurch sinkt wiederum das verfügbare Einkommen einer Volkswirtschaft und damit auch der Konsum. Die Nachfrage nach Gütern geht noch weiter zurück und es kann zu einer Abwärtsspirale kommen.
If the economy reaches a long-lasting low point of an economy, one speaks of a depression. Economic output has declined sharply during this period and capacities are barely being used. As a result, fewer and fewer investments are made. At the same time there is high unemployment.
The remaining wages are at a low level and thus ensure a comparatively low national income. This in turn is reflected in consumption and the demand for goods and services.