Download The Business Cycle

1 Macroeconomics
LESSON 7
The Business Cycle: Introduction to
Macroeconomic Indicators
Introduction and Description
Procedure
The study and control of business cycles are the
heart of macroeconomics. Business cycles are
a problem because output fluctuations lead to
unemployment and inflation.
1. Discuss what students have seen, heard, or
experienced that leads them to think the
economy is doing well or poorly. Make sure
unemployment and inflation are included in the
discussion. Current data for unemployment and
inflation are available on the Bureau of Labor
Statistics Web site: www.bls.gov.
Objectives
1. Understand that the business cycle is made up of
ups and downs in the economy.
2. Define the phases of the business cycle.
3. Understand the general meaning of the terms
unemployment, inflation, recession, depression,
peak, trough, expansion, contraction, and recovery.
More detailed understanding and definitions are
included in lessons in later units.
Time Required
One class period or 45 minutes
Materials
1. Activity 1-10
2. Visual 1-11
Bell Ringer
Ask students how they think the economy is doing
right now—is it “up” or “down”? You can get an
idea of where the economy is (i.e., the phase of the
business cycle) at http://www.nber.org/cycles.html,
the Web site of the organization that dates U.S.
business cycles.
2. Explain that the economy experiences ups and
downs over time. The business cycle represents
these economic fluctuations. The current state
of the economy reflects the phase of the business
cycle the economy is in. Show the business cycle
Visual 1-11.
3. Use Visual 1-11 to discuss the phases of the
business cycle. Recession is defined as two
consecutive quarters (six months) of negative
growth in real GDP. A severe recession is called
a depression, but there is no specific definition
of a depression. The point after which output
starts to decline is called the peak of the
business cycle, or the beginning of a recession.
The point after which output starts to increase
is called the trough of the business cycle. After
the trough of the business cycle, the economy
goes into a recovery period. The period between
the trough and the next peak is called an
expansion.
4. Business cycles are defined in terms of output;
however, other variables follow the movement
of output. The unemployment rate rises during
recessions and falls during expansions. During
a rapid expansion, the economy may experience
inflation.
Advanced Placement Economics Macroeconomics: Teacher Resource Manual © Council for Economic Education, New York, N.Y.
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1 Macroeconomics
5. Emphasize these points about business
cycles:
■■ There is no consistent length of time for
each phase.
■■ Business cycles are difficult to predict.
■■ We are only certain about the phase of
the business cycle in hindsight. That
34
LESSON 7 (CONTINUED)
is, we can’t tell when the economy
has reached a peak until after it starts
downward, and we can’t tell when it
has reached a trough until after it starts
upward.
6. Have students complete Activity 1-10, and
review the answers with students.
Advanced Placement Economics Macroeconomics: Teacher Resource Manual © Council for Economic Education, New York, N.Y.
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1 Macroeconomics
VISUAL 1-11
Phases of the Business Cycle
Peak
Contractionary
(Recession)
Expansionary
(Recovery)
REAL GDP
Expansionary
(Recovery)
DP
n
re
-r
ng
Lo
t
un
f
do
G
al
re
Trough
PERIODS OF TIME
Advanced Placement Economics Macroeconomics: Teacher Resource Manual © Council for Economic Education, New York, N.Y.
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