Business Cycle Basics
What is the business cycle?
The rise and fall of economic activity over time
What usually happens to jobs during an expansion?
Employment increases
What is a recession?
A decline in economic activity
What is a peak?
The highest point of economic activity
What is fiscal policy?
Government spending and taxation
Name the four main phases of the business cycle
Expansion, peak, contraction(recession), and trough
How does consumer spending change during expansion?
Spending increases
What happens to unemployment in a recession?
Unemployment rises
What is a contraction?
A decline in economic activity
What is monetary policy?
Control of money supply and interest rates
What phase comes right after peak?
Contraction (reecission)
Why do businesses invest more during expansion?
Demand and profit rise
What is a trough?
The lowest point of the business cycle
What often signals that the economy has reached its peak?
Rising inflation or interest rates
How can the government fight a recession?
Increase spending or cut taxes
What phase is marked by the rising GDP and Employment?
Expansion
What happens to GDP during expansion?
GDP increases
What happens to business profits during a recession?
Profits fall
How do wages usually behave during a contraction?
Wage growth or falls
How can the Federal Reserve slow inflation?
Raise interest rates
What phase comes right before expansion begins again?
Trough
How do interest rates usually change late in an expansion?
They tend to rise
Why might consumers save more during a recession?
Economic uncertainty
How does a contraction differ from a recession?
A recession is a prolonged contraction
Why do higher interest rates reduce consumer spending?
Borrowing is becoming more expensive