Why Do Economies Experience Business Cycles?

Think of an economy like a giant swing at the playground. It goes up, then it comes down, then up again. This up-and-down movement is called a business cycle.

When everyone feels happy and confident, they spend more money. This is called an expansion. Shops sell more, so they hire more people. But sometimes, people spend too much. They buy things they do not need. Then, they run out of money or feel scared.

Suddenly, confidence drops. People stop spending. This is a recession. It feels like the swing going back down. But this down-time is not forever. New ideas, new technology, or changes in rules help people feel safe again. Then the swing goes up once more.

It is not a mistake. It is how human groups behave when they get excited or scared together.