The Business Cycle

What is it? –Systematic ups and downs of GDP Consists of… Peak – the point where GDP stops going up Trough – where GDP stops going down Expansion – growing GDP Contraction – declining GDP

Business cycle

Downward slope for two consecutive quarters=

Upward Slope =

Recession and Depression Recession - Period in which real GDP declines for two quarters in a row. Recession - Period in which real GDP declines for two quarters in a row. Depression – state of the economy with large numbers of people out of work, acute shortages, and excess capacity in manufacturing plants.

Recession and Depression

Leading Factors Spending = Capital Expenditures Changes in inventory Innovation, or imitation Monetary Factors – credit and loans External “shocks” – increases in prices, wars, etc.

Why do you care? What does it really mean to be in a recession? People losing jobs, unemployment on the rise, investments are being lost, etc. What does it really mean to be in a depression? Large number of citizens out of work, factories closing, corporations going out of business. A depression is, in essence, nothing more than a prolonged recession.