Chapter 13, Problem 16AA

To determine

To ascertain: The various phases of a business cycle.

Explanation of Solution

The 4 main phases of a business cycle are as follows:

Expansion: When the country is facing continuously economic growth up to a certain time period, it means that the economy is emerging from the business cycle's decline or recessionary period and heading into the phase of expansion. Companies continue to expand during this period, growing jobs and reducing unemployment. Production continues to increase, and GDP growth is positive.

Peak: The business cycle equilibrium period is a transition from economic growth to recession. An economic boom is when economic production and unemployment are usually at the highest levels they have been in recent years, and GDP tends to grow positively. Economists do not see peaks as positive occurrences and they see them as an increasingly rising economy.

As the expansion of the economy took quickly, inflation rates rise and the dollar's value decreases. A peak is also an indication of the economic recession to come.

Recession: it is a macroeconomic term referring to a substantial decrease in overall economic activity in a specified region, expressed by GDP in accordance with monthly measures such as an increase in unemployment

Trough: The trough trend of business period that the adjustment process between economic decline and growth that usually signifies a recession. Economic production is the lowest, and in general, the highest unemployment they have been in recent years. Throughout this time the Gross Domestic Product, which is the total sum of all services and goods produced in the country, is negative. A positive GDP is an indicator of economic recovery emerging from a recession, the next step in the cycle of business.

Economics Concept Introduction

Introduction: Business cycle is also known as trade cycle or economic cycle, is the upward and downward movement of GDP around its growth trend which is long term. One of the key reasons business cycle is relevant for companies is that it can have a significant effect on customer demand.