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Business Cycle
Fluctuations in the economy characterized by changes in economic activity.
Peak
The height of the economy where it is most prosperous.
Recession
A period where GDP does not grow for at least 6 months (2 quarters).
Depression
A severe recession where real GDP decreases over 10%.
Trough
The lowest point of a downturn, specifically in a recession or depression.
Expansion/Recovery
A phase where real GDP grows.
Aggregate Supply
The total goods and services that businesses are willing and able to produce based on changes in the price level.
External Shocks (to Aggregate Supply)
Factors such as weather, oil prices, and technological changes that can affect aggregate supply.
Aggregate Demand
The total goods and services purchased by all sectors of the economy, influenced by changes in the price level.
External Shocks (to Aggregate Demand)
Factors such as household wealth, consumer confidence, and government policy that can impact aggregate demand.
Characteristics of Fluctuation
Irregular and unpredictable changes in economic variables, impacting the standard of living.
Effect of AD on Expansion
When aggregate demand increases, it leads to expansion where prices rise and aggregate supply is boosted.
Effect of AD on Recession
When aggregate demand decreases, it causes a recession leading to falling prices and decreased aggregate supply.
