The Business Cycle

The Business Cycle

Business Cycle Covers periods of alternating economic growth and recession (or negative economic growth) It is measured by changes in the real GDP Real words: ups and downs of the economy

Fluctuations in Business Cycle Occurs over time Results b/c of changes in economic growth and consumption patterns Economists look at the business cycle to hopefully see where the economy going in the future

Real GDP Time

Dynamics of the Business Cycle -causes of fluctuations are varied Expansion period: when consumer spending increases and production increases

The Prosperity Cycle HIGHER AGGREGATE DEMAND INCREASED PRODUCTION GREATER LEVELS OF EMPLOYMENT INCREASED INCOME INCREASED CONSUMPTION HIGHER AGGREGATE DEMAND

Eventually the economy will peak and then trend will begin to reverse Why? -Consumers may have simply exhausted purchasing patterns that pushed up aggregate demand -wants are satisfied -an event like market crash -an increase in producers who are competing for capital funds to support business expansion trends to put pressure on interest rates (interest rates increase, consumers less likely to buy) -as prices rise higher inflation begins to occur and consumers income decreases

Recession Decreased incomes can lead to decrease in consumer demand for goods and services ->shifts aggregate demand to left Revenue of firms will tend to decline Firms may be forced to cut back production in order to control costs; lay off workers or go out of business (downward spiral) This called recessionary trend DEF: when real GDP growth is negative or declines for 2 consecutive quarters (2 -3 month periods) Characterized by increasing levels of real GDP growth, and low levels of inflation or even falling prices (deflation)

Depression Happens if recessionary period is prolonged by aggregate demand, with very high unemployment and very low output levels Eventually it will fall enough that consumers will begin to spend again and it will begin to rise

And now time for Mr Clifford! https://www.youtube.com/watch?v=O-M6ZK93LnM

The national economy goes up and down like a roller coaster over time The Business Cycle The national economy goes up and down like a roller coaster over time Real GDP Inflation Unemployment Peak Real GDP Trough Full Employment Recession (Contraction) Recovery (Expansion) Time A recession is 6 month period of decline in Real GDP. (If really bad…then depression) Copyright ACDC Leadership 2015