Lesson 5.2: Business Cycles

Flashcards made from a presentation segment created as a lesson on business cycles.

Business cycle

The alternation between economic downturns, known as recessions, and economic upturns, known as expansions

• Often affected by specific economic variables that bring about the next phase; however, forecasting is difficult

Business investment

Factor in the business cycle where businesses spend more money, increasing GDP and economic expansion

• Office buildings are one manifestation of this

Credit cost

Factor in the business cycle describing the cost of borrowing money

• Higher levels of this may result in decreased consumer spending or business investment

External shocks

Factor in the business cycle describing those outside of a business’s control that positively or negatively affect growth

• Wars and global pandemics are examples of this

Consumer expectations

Factor in the business cycle describing predictions made by consumers about the future that affect present spending

Recessions

Periods of economic downturn when output and employment are falling with dwindling business activity

• Defined as 2 consecutive quarters of falling real GDP

• Usually lasts from 6 to 18 months with 6 to 10 percent unemployment

Depressions

Deep and prolonged downturns

• No precise definition; usually defined as a recession with high unemployment and low economic output

Stagflation

A decline in real GDP (output) combined with a rise in the price level (inflation)

Expansions

Periods of economic upturn when output and employment are rising with general prosperity

• Measured by a rise in real GDP

Peak

The time when real GDP stops rising and the economy has reached the height of an economic expansion

• Unemployment and inflation are low

Contraction

The time after a peak marked by a decline in falling real GDP and higher unemployment

Trough

The time after a contraction when the economy has “bottomed out” as real GDP stops falling and expansion begins