The Business Cycle Chapter 10 Economic Fluctuations, Unemployment and Inflation

Business Cycle Defined as: –The pattern of rising real GDP followed by falling real GDP.

Business Cycle Pattern of the Business Cycle –The pattern is that of a period of growth, called expansion, which hits a peak. –The growth is followed by a fall in the economy, called a contraction. –The bottom of the fall is called the trough.

Business Cycle Pattern of the Business Cycle –After a period of time in the trough, the economy resumes its growth/expansion. – Later, it hits another peak, at a higher size of GDP.

Changing Business Cycle Vocabulary Panic Crash Depression Recession Growth-Adjustment Phase Jobless Recovery

Indicators Economists use changes in a variety of activities to measure the business cycle, and to try to predict where the economy is headed. They include: –Leading indicators –Lagging indicators

LEADING INDICATORS Variables that change before real output changes. They include: –Unemployment claims –Manufacturers’ new orders

LAGGING INDICATORS Variables that change after real output changes. They include: –Inventories to sales ratio –Outstanding commercial loans