Business cycles have four phases: expansion, peak, recession, and trough. Expansion is a period of economic growth where output, employment, and income rise. At the peak, the economy reaches full employment and inflation rises. The recession follows as output declines. The recession bottoms out at the trough, where there is a general reduction in economic activity. Theories of business cycles include endogenous theories related to monetary policy, investment, consumption, and psychology, as well as exogenous theories concerning external factors like wars.