1. The Business Cycle  Definition: alternating increases and decreases in the level of economic activity, sometimes extending over several years

2. Business Cycles in the U.S. Recessions last about 14 months historically

3. Phases of the Cycle  Peak:  The top of the cycle where Real GDP is at a maximum  Unemployment is low  Inflation may be high  Contraction:  Real GDP is falling for two consecutive quarters  Unemployment rate is increasing  Inflation falls, might have deflation

4. Phases of the Cycle  Trough:  The bottom of the Cycle where a contraction has stopped  Unemployment is very high  Zero to negative inflation (deflation)  Expansion:  A period where real GDP is growing and returning to Full Employment  Unemployment is decreasing  Inflation is increasing

5. You should know…  The secular trend  The Quarter system  A contraction or recession is a decline in real GDP that lasts at least 6 months (2 quarters) Expansions are associated with an assumption of increased inflation Recessions are associated with an assumption of increased unemployment

6. 2 more things  STAGFLATION- Increasing inflation in the absence of economic growth  MISERY INDEX- The unemployment rate and the inflation rate added together