The Business Cycle

alternating increases and decreases in economic activity over time

Phases of the business cycle

• Peak

• Recession

• Trough

• Expansion

The Business cycle

Business Cycle Fluctuations

Economic shocks

Prices are “sticky” downwards

Economic response entails decreases in output and employment

7,100,000/168,300,000 × 100=4.2%

Types of Unemployment

Frictional unemployment: individuals searching for jobs or waiting to take jobs soon

Structural unemployment: Occurs due to changes in the structure of teh demand for labor

Cyclical unemployment: Caused by the recession phase of the business cycle

GDP Gap

actual gdp-potiential gdp