The Business Cycle
Read this article, and then summarize what you consider the three most viable causes of business cycles.
The Phases and Turning Points of Business Cycles
Business cycles are composed of two phases and two turning points.
Phases
- Expansion: The period of time in which real GDP rises and unemployment declines. It is sometimes called recovery.
- Contraction: The period of time in which real GDP declines and unemployment rises. A recession is six consecutive months of decrease. A "severe recession" is called a depression. There is no official definition of severe (length and depth).
Turning Points
- Peak: A peak occurs when the real GDP reaches its maximum, stops rising, and begins to decline. It is determined after the fact.
- Trough: A trough occurs when the real GDP reaches its minimum, stops declining, and begins to rise. It is determined after the fact.
Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite being termed cycles, these fluctuations in economic activity do not follow a mechanical or predictable periodic pattern.