Transcript The Business Cycle

The Business Cycle
Chapter 10
Economic Fluctuations,
Unemployment and Inflation
Business Cycle
Defined as:
– The pattern of rising real GDP followed
by falling real GDP.
Business Cycle
• Pattern of the Business Cycle
– The pattern is that of a period of growth,
called expansion, which hits a peak.
– The growth is followed by a fall in the
economy, called a contraction.
– The bottom of the fall is called the
trough.
Business Cycle
• Pattern of the Business Cycle
– After a period of time in the trough, the
economy resumes its growth/expansion.
– Later, it hits another peak, at a higher
size of GDP.
Changing Business Cycle
Vocabulary
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Panic
Crash
Depression
Recession
Growth-Adjustment Phase
Jobless Recovery
Indicators
• Economists use changes in a variety of
activities to measure the business cycle, and
to try to predict where the economy is
headed.
• They include:
– Leading indicators
– Lagging indicators
LEADING INDICATORS
• Variables that change before real output
changes.
• They include:
– Unemployment claims
– Manufacturers’ new orders
LAGGING INDICATORS
• Variables that change after real output
changes.
• They include:
– Inventories to sales ratio
– Outstanding commercial loans