Phases of the Business Cycle Expansion Peak Contraction Trough GDP/GNP numbers are on the rise Highest point of economic expansion Lowest point of economic contraction GDP/GNP numbers are on the decline

Degree of Contractions Recession ◦ Prolonged economic contraction  2 consecutive quarters of negative growth Depression ◦ Recession that is especially long and severe Stagflation ◦ Decline in real GDP with inflation ◦ China  Fast growth with deflation

Recent US cycles years of correction 5-8 years of growth

Efficiency Capital Deepening ◦ Process of raising capital per worker ◦ Stock investment makes money available for companies to spend ◦ Government spending on the national debt takes available investment money away Technological Progress ◦ Growth – (capital + labor) Depreciation ◦ Loss in value of capital goods

R & D Graveyard Difficult to get funding Government Funding Business Funding Loss of Funding Innovation Theory Conceptual Commercial Production Engineered Many Projects Die