periodic fluctuation in the rate of economic activity, as measured by the levels
of employment, prices, and production. Figure 1, for example, shows changes in wholesale
prices in four Western industrialized countries over the period from 1790 to 1940. As can
be seen, the movements are not, strictly speaking, circular, and although some
regularities are apparent, they are not exactly wavelike. For these reasons, some
economists prefer the term business fluctuation over business cycle.
There are
many types of economic fluctuations. Because of the complexity of economic phenomena, it
may be that there are as many types of fluctuations or cycles as there are economic
variables. There are daily cycles in commuter traffic or the consumption of electricity,
to cite only two examples. Almost every aspect of economic life displays seasonal
variations: sales of coal or ice, deposits in savings banks, monetary circulation,
agricultural production, purchases of clothing, travel, and so on. As one lengthens the
span of observation, one finds new kinds of fluctuations such as the hog cycle and the
wheat cycle, the inventory cycle, and the construction cycle. Finally, there are movements
of general economic activity that extend over periods of years.