3-3a Business Cycles
The business cycle can be divided into four phases:
Expansionary or Recovery Phase: Real output in the economy is increasing and the unemployment rate is declining. As the economic expansion continues, inflation may begin to accelerate.
Peak: Real output, GDP, is at its highest point of the business cycle. This is the beginning of a downturn.
Contractionary of Recessionary Phase: Real output in the economy is decreasing, and unemployment rate is rising. As the contraction continues, inflationary pressures subside. If the recession continues long enough, prices may actually start to fall, a situation known as deflation.
Trough: The lowest point of real GDP reached during the business cycle is known as the trough. This is the beginning of a recovery.
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