Economic fluctuations:

the business cycle

Business cycle

•is the fluctuation in the level of

economic activity alternating between
periods of depression and boom
conditions.
Four phases of the business cycle
• Peak/boom
• Recession
• Trough
• recovery
recession
•Decline in real GDP at least
two consecutive quarters
trough

• is where the level of GDP ‘bottoms out.

• Unemployment and idle productive capacity
are at their highest levels relative to
preceding years.
recovery
• is an upturn in the business cycle during which real
GDP starts to rise again.
• Profits of the business generally improve, investment
starts to expand once more, real GDP increases and
employment moves toward full employment.
Investment and business cycle

•What causes the economy to fluctuate?

- The volatility of fixed investment and
inventory investment expenditure
The costs of business cycles

• The production of goods and services falls

• Reduce living standards
• Government intervention
ECONOMIC GROWTH

• Defined as an expansion of the national

output usually measured by the annual
percentage increase in a national real GDP.