Economics / Unit 8: Measuring the Economy: GDP, Unemployment and Inflation
8.3 The Business Cycle
Notes
The business cycle is the pattern of rises and falls in real GDP over time.
- Expansion: real GDP and employment grow. Peak: the high point. Contraction: real GDP falls and unemployment rises. Trough: the low point, before recovery begins.
- A recession is a significant, widespread decline in economic activity. A common rule of thumb is two quarters in a row of falling real GDP; in the U.S., the National Bureau of Economic Research officially dates recessions using many measures.
- A depression is a very long, severe recession, such as the Great Depression that began in 1929. The Great Recession lasted from December 2007 to June 2009.
- Causes of fluctuations include changes in business investment, consumer confidence, interest rates and supply shocks such as the oil price jumps of the 1970s.
- Leading indicators tend to change before the economy does, such as stock prices, building permits and new claims for unemployment benefits.
Practice
During which phase of the business cycle does unemployment usually rise and real GDP fall?
In a contraction, output falls and firms lay off workers.
The Great Recession in the United States lasted from:
It began in December 2007 and ended in June 2009.
Which is a leading economic indicator?
Permits signal future construction activity, so they change before the economy does.
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