Business Cycle Theory explains the fluctuations in economic activity that occur over time, typically characterized by periods of expansion and contraction. These cycles consist of four main phases: expansion, peak, contraction, and trough. During expansion, economic indicators like GDP and employment rise, while contraction sees a decline in these indicators. The theory helps economists understand the causes and effects of these cycles, which can be influenced by factors such as monetary policy, fiscal policy, and external shocks. By analyzing these patterns, policymakers can implement strategies to stabilize the economy and mitigate the impacts of recessions.