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Chapter 14.1 Notes Business Cycles I. Business Cycle- the ups and downs of real GDP ( 2 phases) A. Recession- when economy/Real GDP declines for at least six months 1. a recession begins when real GDP starts going down 2. a recession ends when real GDP hits a Trough/bottom and starts going up B. Expansion- when economy/ GDP increases after it hits a trough 1. an expansion ends when real GDP reaches a Peak C. Depression – when real GDP goes down severely for an extended time II. 3 causes of the Great Depression? A. Big gap between rich and poor B. people borrowed on easy credit and couldn’t afford to pay back C. other nations were poor & couldn’t afford to buy U.S. stuff III. What causes business cycle / Real GDP to go up and down A. Amount of investment by businesses changes B. level of Innovation/Inventions changes C. Interest rates change D. External shocks (ex. War, oil prices) IV. 2 methods to predict how the business cycle will perform: A. Spending by consumers, gov., business, net exports B. Index of leading indicators- 10 statistics about economy(ex. avg. hrs. worked)