What happens at a peak in the business cycle?

At a peak in the business cycle, the economy reaches its highest point of activity, which often signals the turning point where growth begins to slow down. This is a critical phase where key indicators such as GDP, employment rates, and production levels are at their maximum. However, as demand starts to level off and supply may begin to outpace demand, it can lead to a contraction phase.

This transition often arises due to various factors such as rising interest rates, inflation concerns, or changes in consumer behavior, which can hinder further economic expansion. Thus, understanding that the peak is a precursor to economic contraction is crucial for grasping how business cycles operate and how they impact financial decision-making.