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Chapter 12: Problem 2

What are the five phases of a business cycle?

Short Answer

Expert verified
The five phases of a business cycle are: Expansion, Peak, Recession, Trough, and Recovery.

Step by step solution

01

Phase 1: Expansion

The expansion phase is where the economy is growing, GDP is rising, and employment levels are high. Businesses are expanding, production is increasing, and consumer spending is high. This phase continues until the economy reaches its peak.
02

Phase 2: Peak

This phase represents the height of economic growth and output. The peak phase refers to the period when an expansion transitions into a contraction. Everything that can expand has done so. It marks the upper turning point of the business cycle.
03

Phase 3: Recession

Following the peak, the economy enters into a recession. In this phase, the GDP starts to decline, business activity slows down, and economic indicators such as employment rates, production capacities start to fall. This signifies a downturn in the economy.
04

Phase 4: Trough

This is the lowest point of a business cycle, which means the economy has hit the bottom and is at its worst in this phase. This is a turning point of the business cycle, and following this, the economy starts to recover and grow again.
05

Phase 5: Recovery

This phase is the turnaround from the trough and the economy starts to recover. The GDP starts to increase again, unemployment rates begin to reduce as job market rebounds. Business confidence improves and investment increases, leading to economic growth.

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Most popular questions from this chapter

Define: a. business cycle b. recession

The CPI is 167 in year 1 and 189 in year \(2 .\) What is the inflation rate between the two years?

Define: a. inflation b. demand-side inflation c. supply-side inflation d. velocity e. simple quantity theory of money f. hedge g. deflation

You put \(\$ 1,000\) into a savings account that pays an interest rate of 6 percent annually. How many years before your savings doubles?

The simple quantity theory of money assumes that velocity and the quantity of goods and services are constant.Suppose we drop the second assumption, and something happens so that the quantity of goods and services in the economy falls. What will happen to the price level?
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