Economic Indicators and Measurements

What Is the Business Cycle?

• Stage 2: Peak
• Peak is point at which real GDP is highest
• As prices rise and resources tighten, businesses become less profitable
• businesses cut back production and real GDP drops

What Is the Business Cycle?

• Stage 3: Contraction
• During contraction, producers cut back and unemployment increases
• resources become less scarce, so prices tend to stabilize or fall
• Recession—contraction lasting two or more quarters
• Depression—long period of high unemployment and limited business activity
• Stagflation—stagnation in business activity with inflation of prices

What Is the Business Cycle?

• Stage 4: Trough
• Trough is point at which real GDP and employment stop declining
• A business cycle is complete when it has gone through all four phases