The Business Cycle

A nation’s business cycle with display regular fluctuations in economic activity and GDP

Recovery:

• The economy is recovering from a slump and production/employment is begining to rise

• Customers feel more secure in their employment and are spending more

• Firms invest more in fixed assts and increase their capacity leading to job creation

Boom:

• Skilled workers become scarce and businesses try to attract workers with higher pay

• Maximum capacity = shortages (low raw materials)

• Inflation

Recession:

• Government increases interest rates to curb inflation

• Business profits low due to rising prices

• Production falls and workers are laid off

Slump:

• Production is low and unemployment is high

• Demand is low

• Governments take action by increasing their own spending or lowering interest rates