A business cycle is a period of economic expansion followed by a period of contraction. Business cycles are major changes in GDP above or below normal levels. Business cycles have four phases. Expansion is a period of economic growth, as measured by a rise in real GDP. The peak is the height of expansion, when real GDP stops rising. A contraction, marked by falling real GDP, follows the peak. The trough is the contraction's lowest point, when real GDP stops falling. A contraction that lasts for at least 6 months is called a recession. A depression is a long and severe recession.

     Business cycles are affected by four main factors: business investment, interest rates and credit, consumer expectations, and external shocks that are unexpected. For example, increased business investment usually leads to increased output and jobs, helping to increase GDP and expand the economy. However, a drop in business spending reduces output and income, which may lead to a decline in GDP. Economists study these factors in order to predict the next turn of the business cycle.

     Economic activity in the United States has followed a pattern of cycles. The Great Depression, which began in 1929, was the most severe economic downturn. Since then there have been several recessions, including short ones in 1991 and 2001. Following the 2001 recession the economy entered a period of slow and uneven growth.