Question

Label the phases of a business cycle and explain the following terms:

            a.         peak                                                    b.         recession

            c.         trough                                                  d.         recovery

            e.         growth or “secular” trend

Answer 1

Since business cycle is referred as an economic model which describes fluctuation in economic activity. The economic activities includes production of goods and services.

The stages in the business cycle are expansion, peak, recession or contraction, depression, trough, and recovery.

It means that a business cycle goes through its phases in the sequence of Recession, trough, expansion and Peak.

Peak is the time in the business cycle when economic growth reaches at its maximum level.

In the time of Recession unemployment start increasing and economic growth starts falling.

In the time of expansion unemployment start decreasing and economic growth starts rising.

Trough is the time in the business cycle when economic growth reaches at its minimum level and the unemployment rate is very high.

Growth or trend can be defined as a straight line in the business cycle model, which is usually upward sloping and it depicts the long-run pattern of change in real GDP over time.