Econs-Business cycle

Define business cycle

Refers to the regular fluctuations of economic activity around a long term growth trend.

What are the four phases of the business cycle?

1. Expansion/upturn

2. Boom/peak

3. Contraction/downturn

4. Trough

Business cycle diagram

What are the characteristics of a boom/peak?

• Higher consumer and business confidence

• Higher consumption- particularly durable goods.

• low unemployment- full employment achieved- shortage of skilled workers

• High levels of profitability

• High business confidence

• High investment by firms

• High wages-incentive to seek employment

• High participation

• Low proportion of income saved

• Total level of savings increases

• Low inventories

• Bottlenecks- supply constraints- supply is unable to keep up with demand.

• High levels of demand pull inflation

What are the characteristics of a contraction?

What are the characteristics of a trough?

What are the characteristics of a expansion?