Business cycles refer to the fluctuations in economic activity that an economy experiences over time. These cycles consist of four main phases: expansion, peak, contraction, and trough. During the expansion phase, economic activity increases, leading to higher employment and production. The peak represents the highest point of economic activity before a downturn begins. In the contraction phase, economic activity declines, resulting in reduced consumer spending and increased unemployment. The trough is the lowest point of the cycle, after which the economy begins to recover and enter another expansion phase. Understanding business cycles helps policymakers and businesses make informed decisions.