101 Concepts for the Level I Exam
Concept 24: Business Cycle
Business cycles refer to the fluctuation in economic activity where the real GDP and unemployment vary through time. The four stages of the business cycle are: expansion, peak, contraction and trough.
Business cycle characteristics
- GDP growth rate changes from negative to positive.
- High unemployment rate and a moderate or declining inflation.
- Increasing production to meet the pickup in sales with more flexible methods like overtime or increasing utilization levels.
- Housing activity starts to pick up coupled with an increase in consumer spending.
- GDP growth rate increases.
- Reduction in unemployment rate as hiring rises.
- Inflation may begin to rise.
- Increasing production needs are met with investments and labor force additions.
- Housing demand leads to a rise in construction activity.
- Import increases as the domestic GDP increases.
- GDP growth rate decreases.
- Unemployment rate decreases but firms cut back on hiring.
- Business and consumer confidence declines, slowing the growth rates in investments and consumer spending.
- Inflation rate increases.
- GDP growth rate is declining.
- Unemployment rate increases as firms cut back on production.
- Inflation decreases with a lag.
- Decline in consumer and business confidence lowers the investment and consumer spending.
- Housing activity starts to decline.
- Import decreases as the domestic GDP decreases.