Which stage of the business cycle is followed by a contraction?

The business cycle consists of various stages that economies experience, including expansion, peak, contraction, and trough. After a contraction, which is characterized by a decline in economic activity, the subsequent stage is known as a trough. During the trough, the economy reaches its lowest point, marking the end of the contraction period. Following this stage, the economy typically begins to recover, leading to expansion once again.

A contraction occurs after a peak, where the economy is performing at its highest levels. However, the peak signifies a transition point that does not lead directly to recovery. Instead, it leads down into a contraction phase. Understanding this progression in the business cycle provides crucial insights into economic fluctuations and helps in making informed decisions based on economic conditions.