Transcript 11.3 Business Cycles

11.3 Business Cycles
Objectives
 Distinguish between the two phases of
the business cycle, and compare the
average length of each.
 Differentiate among leading, coincident,
and lagging economic indicators.
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11.3 Business Cycles
Key Terms
 business cycle
 recession
 expansion
 leading economic indicators
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U.S. Economic Fluctuations
The business cycle reflects the rise and
fall of economic activity relative to the
long-term growth trend of the economy.
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Recessions and Expansions
A recession is a decline in total
production lasting at least two consecutive
quarters, or at least six months.
Expansion is the phase of economic
activity during which the economy’s total
output increases.
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Long-Term Growth
The U.S. economy has grown dramatically
over the long run.
Reasons production tends to increase
over the long run
Increases in the amount an quality of
resources, especially labor and capital
Better technology
Improvements in the rules of the game that
facilitate production exchange
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Business Cycles
Business
cycles reflect
movements of
economic
activity around
a trend line
that shows
long-term
growth.
Figure 11.5
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History of U.S. Business Cycles
 Economists at the National Bureau of Economic
Research have been able to track the U.S.
economy back to 1854.
 Between 1854 and 2006, the nation experienced
32 business cycles.
 The longest expansion began in the spring of
1991 and lasted ten years.
 The longest contraction lasted five and a half
years, from 1873 to 1879.
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Annual Percentage Change in
U.S. Real GDP Since 1929
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Figure 11.6
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Different Impact on States
The intensity of the business cycle varies
from region to region across the United
States.
A recession hits hardest those regions that
produce durable goods.
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Business Cycles Around the Globe
Market economies around the world often
move together.
A slump in other major economies could
worsen a recession in the United States,
and vice versa.
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U.S. and U.K. Growth Rates
in Real GDP
Figure 11.7
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Growth rates of output in the
United States and the United
Kingdom are similar.
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Economic Indicators
Leading economic indicators are
measures that usually predict, or lead to,
recessions or expansion.
Coincident economic indicators are those
measures that reflect peaks and troughs
as they happen.
Lagging economic indicators follow, or
trail, changes in overall economic activity.
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