1. Krugman Section 1 Module 2
Business Cycles
Krugman Section 1 Module 2

2. Peak When business activity reaches a temporary maximum
The point at which output starts to decline – or the beginning of a recession

3. Contractionary / Recession
Output and income decrease
Unemployment rate increases
Must be a decrease in GDPr for 6 months (measured every 3 months)
As contraction continues, inflationary pressures subside

4. Trough The bottom of the recession Lowest point of GDPr
A deep trough is a depression
Output falls to low levels & unemployment climbs to very high levels

5. Expansionary / Recovery
Output increases toward full employment
Unemployment rate declines
As economic expansion continues, inflation may begin to accelerate

6. Causation
Major innovations may trigger new investment and/or consumption spending
Changes in productivity
Aggregate spending
Cyclical fluctuations: durable goods are more unstable than non-durables because spending on non-durables cannot be postponed

7. Facts: There is no consistent length of time for each phase
Business cycles are unpredictable
Economists are notoriously poor at predicting the downturn