1. Business Fluctuations
Eco 13/4
Business Fluctuations

2. Business Fluctuations
Each year there are ups and downs in unemployment, world trade, inflation, etc.
These are called business fluctuations or the business cycle.

3. Model of the Business Cycle
Growth leads to economic peak (boom)
Boom is a period of prosperity- new businesses are opening, factories are producing at full capacity, near 100% employment.

4. Model of the Business Cycle
Eventually, real GDP levels off and begins to decline.
A contraction of the economy occurs. Business activity slows down.
If the contraction lasts long enough and is deep enough, it slips into a recession.

5. Recession
Any period of at least two quarters- six months- during which real GDP does not grow.
Business activity starts to fall fast economy-wide. Factories cut production and lay off workers.
Consumers cut back on purchases.

6. Depression
Millions are unemployed, many businesses fail, economy operates far below capacity.

7. Trough
Downward direction of the economy levels off. Trough is the lowest point.
Business activity begins to increase, beginning a period of expansion, or recovery.
Consumer spending picks up, signaling factories to hire workers and increase production to meet demand. Continues until another peak.

8. Ups and Downs of Business
See on p. 362