Expansion in the Business Cycle – CPA Exam Definitions

Expansion in the Business Cycle CPA Exam

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Expansion in the Business Cycle

An expansion, also known as an economic upturn or economic growth phase, is one of the four phases of a business cycle. It is characterized by a period of increasing economic activity, marked by positive trends in various economic indicators such as Gross Domestic Product (GDP), employment, consumer spending, and business investment.

During an expansion phase, businesses typically experience increased sales, higher production levels, and greater demand for goods and services. This, in turn, leads to job creation, wage growth, and a rise in consumer confidence, further boosting consumer spending. Increased economic activity also encourages businesses to invest in new projects, expand capacity, and hire more workers to meet the growing demand.

Expansion phases can be attributed to various factors, such as favorable monetary and fiscal policies, technological advancements, increased consumer and business confidence, and strong global economic conditions.

An expansion phase is followed by a peak, which is the highest point of economic activity in the business cycle. After the peak, the economy enters a contraction phase, where economic activity declines, eventually leading to a trough, the lowest point in the cycle. The economy then starts to recover and enters a new expansion phase, repeating the cyclical pattern.

It is important to note that the duration and intensity of expansion phases can vary significantly, influenced by factors such as economic policies, global economic conditions, and the underlying strength of an economy.

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