Chapter 8, Problem 1CQ

To determine

Identify whether the major phases of the business cycle and indicate the changes in real GDP, employment and unemployment, and identify the similarity and predictability.

Explanation of Solution

The major phases of the business cycle are business peak, contraction, recessionary trough, and expansion. In the phase of expansion, the economy will speed up the activity, hence, the real GDP will increase, employment level will increase and the unemployment rate will decrease. In peak, the economy produces at its maximum, hence, the real GDP is very high, high employment rate and low unemployment rate. During the period of contraction, the economy will slow down the economic activity, hence, the real GDP will decrease, the employment rate will decrease and the unemployment rate will increase. In a recession, the economic activity is temporarily shut down or reduces; hence, the real GDP is very low, low employment rate, and high unemployment rate.

The time period of the business cycle and the duration of the various phased are relatively not similar, it will depend upon the economic situation. Therefore, the phased of the business cycle is not predictable.

Economics Concept Introduction

Business cycle: The business cycle is said to be a series of cyclical fluctuation of economic activity expansion and contraction that prolong over a period of time. There are four stages of the business cycle, which are a boom, recession, depression, and recovery.