Business Cycles in Detail

Business Cycle

A natural rise and fall of economic activity over time characterized by alternating phases of expansion and contraction.

Gross Domestic Product (GDP)

The total value of all goods and services produced over a specific time period, used as a measure of economic output.

Expansion

A phase of the business cycle where the economy begins to grow after a recession, characterized by increasing GDP and decreasing unemployment.

Recession

A period of economic decline defined as a decline in GDP for two consecutive quarters.

Depression

A prolonged and severe form of recession characterized by extremely high unemployment and very low production levels.

Fiscal Policy

Government use of spending, taxation, and transfer payments to influence the economy and stabilize economic fluctuations.

Monetary Policy

Regulation of the money supply and interest rates by a country's central bank to achieve specific economic goals.

Budget Deficit

Occurs when a government’s expenditures exceed its revenues within a specific period, reflecting a shortfall in the budget.

National Debt

The accumulated amount of money a government owes to creditors over time due to running consistent budget deficits.

Primary Deficit

The budget deficit that excludes interest payments on existing debt.

Cyclical Deficit

A deficit that occurs due to economic fluctuations, often temporary and caused by business cycles.

Debt-to-GDP Ratio

The ratio of a country’s total debt to its Gross Domestic Product, indicating fiscal health and sustainability.

Expansionary Fiscal Policy

Stimulative measures taken by a government during a recession, which include lowering taxes and increasing spending.

Contractionary Fiscal Policy

Measures aimed at slowing down an overheating economy, including raising taxes and decreasing government spending.

Inflation Targeting

A monetary policy strategy of aiming for a specific inflation rate, typically to ensure price stability.

Fiscal Multiplier

A measure of how much economic output increases in response to fiscal stimulus, with government spending typically having a larger effect than tax cuts.

Stagflation

An economic condition characterized by stagnant economic growth, high unemployment, and high inflation occurring simultaneously.

Consumer Confidence Index (CCI)

A measure of how optimistic or pessimistic consumers are about the economy's current and future performance.

Quantitative Easing (QE)

A monetary policy where a central bank purchases government securities to increase the money supply and stimulate the economy.

Crowding Out Effect

The reduced investment that occurs when government borrowing leads to higher interest rates, making it more expensive for the private sector to borrow.

Aggregate Demand

The total demand for all goods and services in an economy at a given overall price level and in a given time period.

Consumer Price Index (CPI)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used

Economic Boom

A period of significant output within a population, typically indicating a very healthy economy.

Contraction

A phase in the business cycle where economic activity declines, leading to lower output and rising unemployment.

Leading Indicators

Economic factors that change before the economy starts to follow a particular pattern, used to predict future movements.

Lagging Indicators

Economic indicators that reflect the economy's historical performance, used to confirm patterns or trends.

Coincident Indicators

Economic indicators that occur at the same time as the economic trend they signal, providing insight into the current state of the economy.

Recovery

The phase of the business cycle following a recession, where economic activity and growth begin to resume.

Economic Indicator

A statistic about economic activities that provides insight into the state and direction of the economy.

Structural Deficit

A budget deficit that occurs even when the economy is at full capacity, indicating that government expenditures exceed its revenues under normal economic conditions.

Budget Surplus

A financial situation where a government's revenues exceed its expenditures during a specific period.

Deficit Financing

The practice of funding government spending by borrowing money rather than raising taxes.

Secular Deficit

A long-term, persistent budget deficit that results from underlying structural issues in the economy or government policies.

Balanced Budget

A situation in which a government's revenues equal its expenditures, with no budget surplus or deficit.

Cyclically Adjusted Budget Deficit

A budget deficit adjusted for the effects of the economic cycle, providing insight into the government's fiscal position under normal economic conditions.