Business Cycles 12-2.

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Presentation transcript:

Business Cycles 12-2

What is a business cycle?? A period of macroeconomic expansion followed by a period of macroeconomic contraction. Involve major changes in GDP, not minor ups and downs.

Phase I Expansion: period of economic growth as measured by an increase in GDP. Economy enjoys: Low unemployment rate Business prosperity

Phase II Peak: Real GDP stops rising and economy is at the peak of economic expansion.

Phase III Contraction: economic decline marked by a fall in GDP. Unemployment tends to rise Supply must drop to meet lowering demand.

Phase IV Trough: economy has “bottomed out” Varied levels of severity during contraction and trough stage: recession, depression, and stagflation

Recession Prolonged economic contraction. Unemployment generally rises 6 to 10% Officially a recession when real GDP falls for two consecutive quarters(six straight months)

Depression A long and severe recession. High unemployment and low factory output.

Stagflation Decline in real GDP combined with a rise in the price level.