1. Economic Instability

2. Business Cycle Systematic ups and downs of real GDP Phases Recession
Recovery/Expansion

3. Real GDP Real GDP looks at GDP without any inflation
Shows what GDP would be if prices had not changed

4. Recession Recession = Real GDP declines 6 consecutive months
Begins when economy reaches peak
Peak = where real GDP stops going up
Ends when economy reaches a trough
Trough = when real GDP stops going down

5. Recovery/Expansion Expansion = a period of recovery from a recession
Continues until the economy reaches a new peak

6. Trend Line
Trend line = steady growth path the economy would follow if there weren’t recessions or recoveries/expansions

7. Business Cycle

8. Depression Can occur if recession becomes too severe Characteristics
Large unemployment
Acute shortages
Excess capacity in manufacturing plants

9. Causes of Business Cycle
Capital Expenditures
Inventory Adjustments
Innovation and Imitation
Monetary Factors
External Shocks

10. Stagflation Slow or stagnant economic growth Relatively high inflation
Relatively high unemployment
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