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Introduction:
- A business cycle refers to the change in the level of economic activity.
- The business cycle consists of two main phases, the upswing and
downswing.
- The upswing…
= Also known as the expansion phase.
- Downswing…
= Also known as the contraction phases.
- These phases are determined by the turning points of the cycle.
- As the economy moves from a peak to a trough, it experiences a downswing
phase AND as it moves from a trough to the next peak, it experiences an
upswing phase.
- The Business Cycle Graph…
- What is Period/Length…
= Period is measured from peak to peak AND from trough to trough.
- What is Amplitude…
= This is the vertical distance from minimum to maximum.
= It is proportional to the strength of the business cycle.
- What is Trends…
= The long-term pattern of movement of a time series.
= Indicate the general direction in which indexes are moving.
- Extrapolation…
= Using historical data and predicting the future on that basis.
, - Moving Averages…
= Average price of an indicator over a specific time period.
= This is used to look at price trends.
= The purpose is to smooth the business cycle in order to get a better
picture of the general trend.
Phases of the Business Cycle:
- Upswing Phase…
= Upswing “recovery”.
= Occurs when economic activity picks up from the trough reached at the
low point of the recession, but is still below the trend line.
= Upswing “boom”.
= Often called the prosperity phase, occurs when economic activity is rising
at a rate faster than the trend rate of growth.
- Downswing Phase…
= Downswing “slowdown”.
= Economic activity slows down but still remains above the trend line.
= If this slowdown continues, economic activity declines so much it goes
below the trend line and the economy enters into a recession.
= Downswing “recession”.
= This is two or more consecutive quarters of negative growth.
- Depression…
= Downswing.
= It is a prolonged and deep recession leading to a significant fall in output
and average standard of living.
= Occurs when the Real GDP falls by more than 10% from the peak to the
trough of the cycle.
Stages of the Business Cycle:
- Recovery Stage…
= Spending and consumer confidence increases.
= As monetary flows improve, demand increases and, as a result, output
and employment increases.
= Income starts to rise.
- Boom Stage…
= Consumer spending and business investment is high.
= Business profits are high and wages are rising.
= Business and consumer confidence is high.
= Business will have high demand for goods and services.
= High output due to high demand.
= Consumer debts levels increase.
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