Download Business Cycles

Chapter 12 Section 2 and 3


Must be major changes in real GDP above or
below normal levels
Many things factor into the Business Cycle
and its behavior
◦
◦
◦
◦
Business investment
Interest Rates and Credit
Consumer Expectations
External Shocks

Expansion
◦ Rise in real GDP

Peak
◦ Real GDP stops rising

Contraction
◦ Fall in real GDP

Trough
◦ Real GDP stops
falling

Recession
◦ Real GDP falls for two consecutive quarters ( at least
6 straight months); unemployment = 6-10%

Depression
◦ Typically longer and more severe than recession;
higher unemployment and lower output

Stagflation
◦ Decline in Real GDP (output) combined with a rise in
the price level (inflation)

Business Investment
◦ Decisions about investment (jobs and output)
impact business cycle

Interest Rates and Credit
◦ Typically, when rates are high, spending decreases,
as does output and GDP

Consumer Expectations
◦ Output, Spending, and GDP rely heavily on people’s
perception of the economy

External Shocks
◦ Wars, disruption in supply (oil spill??), droughts
◦ Hardest to predict

GDP and Population Growth
◦ Real GDP Per Capita

GDP and Quality of Life
◦ Material goods
◦ distribution
Employers need to make decisions
on how they can best improve
production.
In doing so, outcomes for laborers
improve.




Population Growth
Government
Foreign Trade
Technological Progress
◦
◦
◦
◦
◦
Scientific Research
Innovation
Scale of the Market
Education and Experience
Natural Resource Use