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Business Cycles

Business Cycles. The Roller Coaster of the Economy. The Business Cycle. The business cycle is the regular pattern of economic expansion and contraction. The general aggregate trend is upward, though in times of severe economic distress it can move downward.

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Business Cycles

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  1. Business Cycles

    The Roller Coaster of the Economy
  2. The Business Cycle The business cycle is the regular pattern of economic expansion and contraction. The general aggregate trend is upward, though in times of severe economic distress it can move downward. The business cycle charts the movement of GDP.
  3. GDP and the Business Cycle Remember Investment helps to drive the business cycle, when investment increases the business cycle moves up. Consumption drives the business cycle, as consumption increases the business cycle moves up. These are pro-cyclical, they move in the same direction as the cycle.
  4. Unemployment and Inflation Remember Unemployment is counter-cyclical; as the business cycle moves up, unemployment declines and vice-versa. Inflation tends to move with the cycle; prices rise as the economy expands and demand increases.
  5. The Cycle
  6. Phases of the Cycle The Business Cycle has four main phases Peak – the top of the business cycle; eventually expansion peaks and GDP begins to decline. Contraction – the period of decline following the peak. Trough – the lowest point of the cycle prior to an expansion. Expansion – growth in the economy following the downturn and trough; 2 consecutive quarters of growth.
  7. Recessions and Depressions A recession is considered to be a decline in real GDP that persists for more than 2 consecutive quarters (3 month periods). A depression has no real definition other than a large recession. Economists consider periods with unemployment of more than 12% to be a depression. Business cycles are measured by the National Bureau of Economic Research Business Cycle Dating Committee.
  8. Leading Indicators Business cycles are forecast by 10 leading economic indicators. Average workweek for manufacturing employees Average weekly initial unemployment claims Manufacturers’ new orders for consumer goods Vendor performance, reported as slower deliveries from suppliers Index of consumer expectations New orders for nondefense capital goods Number of new building permits for new housing Stock prices Interest rates on 10-year government bonds Money Supply, M2
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