Business cycle
The swing of output around its trend through expansion, peak, contraction and trough. It describes the fluctuation, not the growth underneath it.
Where you will meet it
Business cycle appears in 10 learning outcomes on the CFA syllabus. A few of them:
- Set out ways of assigning companies to industries
“Companies are grouped by principal business activity, by sensitivity to the business cycle, or by statistical similarity of returns.”
- Explain the defining features of infrastructure investments
“Infrastructure assets are long-lived, capital-intensive and often provide an essential service under a concession or regulated framework, which gives them steady, frequently inflation-linked cash flows and a low correlation with the business cycle.”
- Set out the stages the business cycle passes through
“The business cycle runs expansion, peak, contraction, trough, and back to expansion.”
- Explain how the nature of the markets a company sells into bears on its creditworthiness
“Stable, predictable demand, pricing power, high barriers to entry, differentiated products and low sensitivity to the business cycle all support steady cash flow and so lower default risk.”
Practise it
Practise business cycle until it is automatic: questions that explain every wrong option.
Take the free diagnostic →