Krugman Section 1 Module 2 Business Cycles Krugman Section 1 Module 2

Peak When business activity reaches a temporary maximum The point at which output starts to decline – or the beginning of a recession

Contractionary / Recession Output and income decrease Unemployment rate increases Must be a decrease in GDPr for 6 months (measured every 3 months) As contraction continues, inflationary pressures subside

Trough The bottom of the recession Lowest point of GDPr A deep trough is a depression Output falls to low levels & unemployment climbs to very high levels

Expansionary / Recovery Output increases toward full employment Unemployment rate declines As economic expansion continues, inflation may begin to accelerate

Causation Major innovations may trigger new investment and/or consumption spending Changes in productivity Aggregate spending Cyclical fluctuations: durable goods are more unstable than non-durables because spending on non-durables cannot be postponed

Facts: There is no consistent length of time for each phase Business cycles are unpredictable Economists are notoriously poor at predicting the downturn