What is a business cycle? As one examines almost any business chart which shows graphically such business data as production, sales, prices, or interest rates, one is impressed with the fact of a wavelike movement. There are ups and downs, and, more than that, the ups and downs manifest a considerable regularity. This is merely a graphical expression of the fact that the history of business is a record of recurrent periods of normal activity, booms, and depressions.

Most of the time, business activity in the United States, at least, is found to be either rising from a relatively depressed condition toward a peak or falling from a relatively prosperous condition toward a bottom. This wavelike movement of business has given rise to the theory of the business cycle.

A "business cycle" is sometimes defined as a "series of changes in business conditions which are characterized by an upward movement toward a boom, followed by a downward movement into depression." Or we may say that a business cycle is a period of time during which there occurs a more or less regular sequence of expansion, boom, recession, and depression. In a very specialized sense business cycles are periodic expansions and contractions of business which involve characteristic phases of maladjustment and readjustment. Clearly, the idea of rhythm in the flow of business is involved.

Thus far we have been taking business cycles for granted. It is now time to examine their nature and causes. No subject is of greater importance in business forecasting.Perhaps the best way to get a definite concept of the business cycle is to recall the typical sequence of events during one of these "waves," and probably it is simplest to imagine business as starting upward from the bottom of one of its recurrent periods of depression. We may start from such a period as the middle of 1921 or the middle of 1924.