Business Cycle 1

Business Cycle

A graph that depicts the alternating periods of economic growth and decline.

Recession

A period during which RGDP is declining for two consecutive quarters (6 months).

Expansion

A period during which output is increasing and unemployment is decreasing.

Boom

A period during which RGDP exceeds potential output.

Peak

The highpoint of an expansionary phase. The point right before a contraction.

Recovery 1

The part of an expansionary phase in which output is increasing but has not yet reached the NRO.

Recovery 2

The part of an expansionary phase in which unemployment is decreasing but has not yet reached the NRU.

Trough

The low point of a contractionary phase. The worst part of a recession.

During a contraction, RGDP is _______ and unemployment is _______.

Decreasing; increasing.

The period during which we see demand-pull inflation...

Boom phase

The period during which we see deflation...

Contractionary phase

Contraction

A period of economic decline marked by falling RGDP.

Output Gap

is created when RGDP deviates from potential output.

Positive output gap

when actual output > potential output

Negative output gap

when actual output < potential output

As GDP rises along the business cycle

unemployment falls

As GDP falls along the business cycle

unemployment rises

RGDP goes on the...

vertical axis

Time goes on the...

horizontal axis

The trend line represents...

potential output