The Business Cycle  Definition: alternating increases and decreases in the level of economic activity, sometimes extending over several years.

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Presentation transcript:

The Business Cycle  Definition: alternating increases and decreases in the level of economic activity, sometimes extending over several years

Business Cycles in the U.S. Recessions last about 14 months historically

Phases of the Cycle  Peak:  The top of the cycle where Real GDP is at a maximum  Unemployment is low  Inflation may be high  Contraction:  Real GDP is falling for two consecutive quarters  Unemployment rate is increasing  Inflation falls, might have deflation

Phases of the Cycle  Trough:  The bottom of the Cycle where a contraction has stopped  Unemployment is very high  Zero to negative inflation (deflation)  Expansion:  A period where real GDP is growing and returning to Full Employment  Unemployment is decreasing  Inflation is increasing