Assess the importance of the business cycle, relating to the labor market and economic activity

Business cycles represent alternations in economic activity through real and adjusted inflation. During expansions, economic activities accelerate due to increased productivity. However, during recessions, economic activities decline due to low productivity. Additionally, during this period, demand decreases, causing low sales, thus affecting profitability and employment since firms have to cut down costs.

Business cycles enable policymakers to understand the dynamics of the labor market; this market changes as the cycle change. For instance, when the cycle is at a peak, the economy experiences full employment. On the other hand, when the business cycle is at a recession, the economy always has high unemployment.