087. Cyclical Variations

Many variables exhibit a tendency to fluctuate above and below the long-term trend over a long period of time. These fluctuations are called Cyclical fluctuations or Business cycles. They cover much longer time periods than do seasonal variations, often encompassing three or more years in duration.

A cycle contains four phases:

1. The upswing or expansion, during which the level of business activity is accelerated, unemployment is low, and production is brisk;

2. The peak, at which point the rate of economics activity has “topped out”;

3. The downturn, or contraction, when unemployment rises and activity wanes;

4. The trough, where activity is at the lowest point.

A cycle runs from one phase to the next like phase and, as shown in Figure 8.3, fluctuates above and below the long-term trend in a wavelike manner.

Figure 8.3 – Cyclical Fluctuations of Foreign Auto Imports

Irregular Fluctuations

Time series also contain Irregular, or Random, Fluctuations caused by unusual occurrences producing movements that have no discernible pattern. These movements are, like fingerprints and snowflakes, unique, and unlikely to reoccur in similar fashion. They can be caused by events such as wars, floods, earthquakes, political elections, or oil embargoes.

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