business cycle

Business cycle

A cycle of expansion and contraction that economies undergo over time

4 cycles

Expansion, peak, contraction, trough

Expansion

• relatively RAPID GROWTH; interest rates tend to be low; production increases

• Employment wages, corporate profits and outputs, supply of goods & services all GROW

Peak

• Growth hits its MAXIMUM rate

• Prices and economic indicators may stabilize for a little before hitting a downward

• Businesses may start to reevaluate budgets and spending when they think its hit the peak

Contraction

• growth SLOWS; employment FALLS; prices STAGNATE

• Businesses may not immediately adjust production levels, leading to oversaturated market, with a surplus supply and downward in prices

Trough

• the economy hits a low point

• Supply and demand hitting bottom before recovery

• Low point in cycle represents a painful moment in economy, with a widespread negative impact from stagnating spending and income

Recession

Significant decline in economic activity that is spread across the economy and that lasts more than a few months

NBER decides using: real personal income, employment, consumer spending, industrial production

Recovery

Begins when the recessionary cycle reverses meaning there is:

• rising output triggering job gains

• Rising incomes

• Increasing sales

• A rise in output

Recession vs depression

Recession: downward rend in cycle characterized by a decline in production and employment; delay in making big purchases; limited to one country

Depression: major DOWNSWING in a cycle characterized by sharply reduced widespread unemployment serious decline of growth in construction and great reductions in international trouble; can be in multiple countries if not all