Chapter 14 Business Cycles and Economic Growth

Business Cycle- recurrent swings (ups and downs) in the economy 1. Peak- point at which the business cycle is at a temporary high 2. Contraction-point at which the business cycle decreases -if contraction lasts two or more consecutive quarters- recession 3. Trough- the low point in the business cycle, just b/4 it turns up 4. Recovery- period when the business cycle is rising-it begins at the trough and ends at the initial peak 5. Expansion- increases in the business cycle beyond the recovery

 business cycle is measured from peak to peak (read page 367)

What causes the business cycle -changes in the money supply -increase in $$supply causes more spending = recovery -decrease in $$supply causes less spending = contraction -business investment -less investment = contraction -residential construction -less construction = contraction -government spending -more gov’t spending = recovery -politics -pass more spending bills to get reelected and economy recovers -innovation What causes economic growth? -increase in natural resources -more = more production -increase in labor -more work---> more spending -increase in capital -more spending + investing -technological advances -incentives -more $$ + more production