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Economic Cycle For Kids

 The economy of a country is decided by businesses – how well businesses are doing or how poorly. Economies are always changing.

If businesses are flourishing and people are working and earning money, then the economy of the country is either stable or growing.

economic cycle

When people have been laid off work and businesses are forced to close because they can’t sell their products, then the economy is shrinking.

All economies in all countries all over the globe are going through constant changes. Sometimes the changes are small and people don’t really notice the changes.

Sometimes the changes are huge and this impacts the people severely.

US paper money

Economists are people who study a country’s economy or the global economy.

They say that all economies go through changes; this is sometimes called an economic cycle or a business cycle.

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There are four stages to this cycle: expansion, slowdown, recession, and recovery.

Related: History of Money

There is no set time for the length of each stage. Some countries are in a recession for a very long time.

One example is Haiti. Even with other countries providing aid, it still has not recovered from the devastation of the hurricanes of 2008, 2012, 2016, and the earthquake of 2010.



This is a time when business is booming. New businesses are opening. There are lots of jobs for people; wages are high, and the unemployment rate is low.

People have extra money; they buy new houses and new cars, go on trips to other countries, and invest in the stock market.

People can borrow money from banks at low interest rates because they have a steady income. People are happy and have a lot of confidence that things will stay the same for a long time.



Businesses are still operating in a healthy way but they stop hiring new employees. Certain things are happening that makes economists take note.

Slowly the banks start increasing the interest rates on loans. People start to think twice about buying something big, like a house or a new car.


The prices of some items in the grocery store begin to increase. Stocks on the stock mark begin to drop. People begin to worry about their job security and begin to be cautious about spending money.


Sometimes a recession occurs when some major event happens, such as a stock market crash, a war, a major pandemic, a terrible catastrophe like a tornado, hurricane or drought, etc.

The interest on bank loans skyrocket. Businesses can’t sell their products because people are afraid to spend money.

They start to lay their workers off and close their doors. People lose their homes because they are no longer employed.

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Sometimes it takes a long time for a country to come out of a recession.

Usually, the government will initiate programs to help individuals and companies get started again and slowly people start to find jobs.

The government can also pay for some employees’ salaries to encourage companies to hire. The banks are forced to lower the interest rates on loans.

Quiz Time!



1) What are three signs that a country’s economy is stable?

2) What are the stages of an economic cycle?

3) What are three signs that a country’s economy is in the stage of expansion?

4) What are three signs that a country’s economy is in the stage of recession?

5) What are two ways that a country’s government can initiate a recovery in the economy?

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1) People are working and spending money.

2) The stages of an economic cycle are expansion, slowdown, recession, and recovery.

3) Signs of expansion are businesses are hiring employees, interest rates are low, and people are making large purchases.


4) Signs of a recession are interest rates are increasing, people start losing their jobs, and people stop spending money.

5) Governments can start a recovery by lowering interest rates, providing money for businesses to start up and hire employees again or start programs where the government will pay some of the salaries of employees.

Money & Economics

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