Business Cycles
Peak: The highest point of real GDP.
o
Exhibits the greatest amount of spending
and lowest unemployment.
o
In this phase, inflation becomes a
problem.
Expansion: “Recovery Phase”
o
Real GDP is increasing as a result of
spending increasing and unemployment decreasing.
Contraction/Recession: Real GDP declines for 6 months.
o
In this phase, you have increasing
unemployment and reduction in spending.
Trough: Lowest point of Real GDP.
o
Includes the highest amount of
unemployment and least amount of spending.
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o
One business cycle is from trough to trough
o
An average cycle is 5 to 7 years
o
Recessions last about 14 months
o
Peaks and troughs are meaningless because
we never know we are in one until it is over
o
Trough means end of a recession
o
If a recession loses more than 10% of real
GDP, then it is a depression
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