2.5.3 Trade (business) cycle

• Define the trade (business) cycle

  It refers to the fluctuations in economic activity that an economy experiences over a period of time.

  
  

  These cycles consist of four main phases: expansion, peak, contraction (recession), and trough.
• Expansion + peak

  Expansion: Period of increasing economic activity, rising GDP, employment, and income levels.

  
  

  Peak: The height of economic growth, where the economy is at its maximum output.
• Contraction + trough

  Contraction (Recession): Period of declining economic activity, falling GDP, rising unemployment, and reduced spending.

  
  

  Trough: The lowest point of economic activity before the cycle begins again with expansion.
• What is a Boom charcterized by?


  By rapid economic growth and high levels of economic activity
• Characteristics of a boom - 1

  -High GDP Growth: Significant increase in the production of goods and services

  
  

  -Low Unemployment: High demand for labor leads to low unemployment rates
• Characteristics of a boom - 2

  -Increased Consumer Spending: High levels of disposable income and consumer confidence drive spending

  
  

  -Rising Investment: Businesses invest heavily in capital and technology to expand production
• Characteristics of a boom - 3

  -Inflationary Pressures: High demand can lead to increased prices and inflation

  
  

  -Stock Market Optimism: Stock prices tend to rise, reflecting investor confidence
• Define recession

  -Its a period of declining economic activity spread across the economy, lasting more than a few months, visible in GDP, income, employment, and production.
• key characteristics of a recession - 1

  -Negative GDP Growth: Decline in the production of goods and services over two consecutive quarters

  
  

  -High Unemployment: Reduced demand for goods and services leads to job losses
• key characteristics of a recession - 2

  -Decreased Consumer Spending: Lower disposable incomes and consumer confidence reduce spending

  
  

  -Reduced Investment: Businesses cut back on investment due to uncertainty and lower demand
• key characteristics of a recession - 3

  -Deflationary Pressures: Falling demand can lead to decreased prices

  
  

  -Stock Market Declines: Falling corporate profits and economic uncertainty lead to declines in stock prices