Business Cycles: An Introduction

Flashcards covering key vocabulary and concepts related to business cycles and economic activity.

Business Cycle

Fluctuations in aggregate economic activity characterized by expansion and contraction.

Trough

The lowest phase in the business cycle, where economic activity is at its lowest point.

Expansion

A phase in the business cycle where the economy is growing and activity is increasing.

Peak

The high point of economic activity in the business cycle prior to a contraction.

Contraction (Recession)

A phase in the business cycle where economic activity is declining.

Output Gap

The difference between actual output and potential output during a business cycle.

Procyclical

Describes a variable that moves in the same direction as the economy, increasing during expansions and decreasing during contractions.

Countercyclical

Describes a variable that moves in the opposite direction of the economy, increasing during contractions and decreasing during expansions.

Leading Indicators

Economic variables that typically change before the economy starts to follow a particular pattern.

Lagging Indicators

Economic variables that follow an event and change after the economy has begun to follow a new trend.

Coincident Indicators

Variables that move simultaneously with the economy, indicating the current state.

Real GDP

A measure of economic activity that adjusts for inflation to provide a clearer picture of the economy's performance.

Inflation Rate

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Unemployment Rate

The percentage of the labor force that is jobless and actively looking for work.

Stickiness of Prices

The resistance of prices to change in response to changes in supply and demand.

Menu Costs

The costs incurred by businesses in changing prices, which can lead to price stickiness.

Staggered Price Setting

A situation where businesses adjust their prices at different times, slowing overall price adjustments.