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Dating the world business cycle

Variations in investment spending is one of the important factors in business cycles.

Investment spending is considered the most volatile component of the aggregate or total demand (it varies much more from year to year than the largest component of the aggregate demand, the consumption spending), and empirical studies by economists have revealed that the volatility of the investment component is an important factor in explaining business cycles in the United States.

A recession—also sometimes referred to as a trough—is a period of reduced economic activity in which levels of buying, selling, production, and employment typically diminish.

This is the most unwelcome stage of the business cycle for business owners and consumers alike.

Some business analysts use the business cycle model and terminology to study and explain fluctuations in business inventory and other individual elements of corporate operations.

But the term "business cycle" is still primarily associated with larger (industry-wide, regional, national, or even international) business trends.

Declines are characterized by decreased levels of consumer purchases (especially of durable goods) and, subsequently, reduced production by businesses.

For centuries, economists in both the United States and Europe regarded economic downturns as "diseases" that had to be treated; it followed, then, that economies characterized by growth and affluence were regarded as "healthy" economies.

According to these studies, increases in investment spur a subsequent increase in aggregate demand, leading to economic expansion. Indeed, economists can point to several points in American history in which the importance of investment spending was made quite evident.

The Great Depression, for instance, was caused by a collapse in investment spending in the aftermath of the stock market crash of 1929.

Indeed, technological breakthroughs in communication, transportation, manufacturing, and other operational areas can have a ripple effect throughout an industry or an economy.

Technological innovations may relate to production and use of a new product or production of an existing product using a new process.

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