Business Cycle

Business Cycles occur all the time

• once cycle is from trough to trough
• Average cycle is 5 to 7 years
• Recessions last about 14 months
• Peaks: troughs are meaningless because we never know until it is over
• Trough means end of recessions
• If recession loses more than 10% of real GDP then it is a depression

Peak is the highest point of real GDP. It has the greatest spending and lowest unemployment. In this phase inflation is a problem.

Expansion- Real GDP is increasing.

Spending increases at this point and unemployment decreases

Contraction/Recession is when real GDP declines for 6 months. Unemployment increases and spending declines.

Trough is the lowest point of real GDP. It has the highest unemployment and the least spending.

Business Cycle