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BUSINESS CYCLES
PHASES AND INFLUENCES ON THE BUSINESS
CYCLE
CHAPTER 10, SECTION 2
BUSINESS CYCLES
 Business cycles are fluctuations, or changes, in a
market system’s economic activity.
 These fluctuations are measured by increases or
decreases in real GDP.
PHASES OF THE BUSINESS CYCLE
 Expansion and Recovery
 Peak
 Contraction or Recession
 Trough
EXPANSION
 A period of economic expansion and growth
PEAK
 A high point at which the economy is at it’s strongest
and most prosperous.
 At a peak, high consumer demand encourages
producers to use plant capacity and more fully to
hire workers.
CONTRACTION
 When real GDP stops increasing, the business cycle
enters a period of business slowdown known as a
contraction or a recession.
 A recession is a decline in real GDP for two or more
consecutive quarters (6 months or more)
DEPRESSION
 Prolonged and severe recessions such as the Great
Depression of the 1930’s
 The Great Depression was the most severe
contraction in US economic history.
TROUGH
 The final stage in the business cycle
 Occurs when demand, production, and employment
reach their lowest levels.
 Following the trough, the economy enters a period of
recovery and the expansion phase begins once again.