keyterms unit 14 business cycle

business cylce mode

a model showing increases and decreases in a nation’s real GPD overtime, this model typically desmontrate an increase in a real GPD in a long run, combined with short-run fluctuations in output.

expansion

a phase of business cycle during which output is increasing

recession

a phase of business cycle during which output is falling

depression

a deep and prolonged recession

peak

the turning point in the business cycle bewteen an expansion and a contraction; during a peak in business cycle, output has stopped increasing and begins to decrease

trough

the turning point in the business cycle between a recession and an expansion; during a trough in the business cycle, output that had been falling during the recession of the business cycle bottoms out and begins to increase again

recovery

when GPD begins to increase following a contraction and a trough in the business cycle; an economy is considered in recovery until GPD returns to its long-term pontential level

potential level

the level of output an economy can achieve when it is producing at full employement; when an economy is producing its full potential output, it experiences only its natural employment, no more or less.

positive output gap

the difference between actual output and potential ouput when an economy is producing more than its full employment ; when there is positive output gap, the rate of unemployment is less than the natural rate of unemployment and an economy is operating out its PPC (production posibilities curve)

negative output gap

the difference between actual ouput and potential output when an economy is producing less than its full employment output, when there is negavtive ouput gap, the rate of unemplyment is more than the natural of unemployment and an economy is operating inside its PPC