Business Cycles - AP Macroeconomics

Interest rates often rise during expansions and fall during contractions. Central banks adjust rates to manage economic growth.

A period of increasing economic activity after a trough. The beginning phase of economic expansion after decline.

To stimulate economic growth and reduce unemployment. Lower interest rates encourage borrowing and spending.

A period of stagnation in economic growth and high inflation. Combination of economic stagnation with rising prices.

It can increase productivity and potential output. Policies that increase economy's productive capacity.

The Real Business Cycle model. External shocks like technology changes drive cycles.

Unemployment insurance is an automatic stabilizer. Provides income support during economic downturns.

Unemployment typically rises during contractions and falls during expansions. Inverse relationship between economic growth and joblessness.

An economic boom. Rapid expansion often followed by equally sharp contraction.

Consumer spending typically decreases. Reduced income and pessimism lead to lower consumption.

Inflationary pressures often increase. High demand and limited capacity drive up prices.

Governments may adjust spending and taxes to stabilize the economy. Automatic stabilizers and discretionary policy responses.

A decline in GDP and employment. Key indicators that define economic contraction.

Increasing economic activity and rising GDP. Economy grows as businesses invest and consumers spend more.

It can lead to long-term economic growth and expansion. New technology increases productivity and economic potential.

Expansion, peak, contraction, and trough. The complete cycle from growth to decline and back.

A business cycle is the fluctuation in economic activity over time. Regular ups and downs in the economy's performance.

Maximum economic activity before a contraction begins. The turning point where growth stops and decline begins.

Decreasing economic activity and falling GDP. Also called a recession when severe and prolonged.

Economic activity is at its lowest before recovery begins. The turning point where decline stops and recovery starts.

Investment is the most volatile component. Businesses cut investment quickly when uncertainty rises.

Stock market performance is a leading indicator. Stock prices reflect future economic expectations.

Unemployment rate is a lagging indicator. Unemployment changes after economic conditions have shifted.

$\frac{\text{GDP}{t} - \text{GDP}{t-1}}{\text{GDP}_{t-1}} \times 100$. Percentage change formula comparing current to previous period.

Monetary policy is the primary tool. Federal Reserve adjusts interest rates to influence economy.

Two consecutive quarters of negative GDP growth. Standard definition used by economists and policymakers.

Cyclical unemployment rises. Unemployment caused by economic downturns and reduced demand.

The classical economic theory suggests this. Classical economists believe markets self-correct naturally.

To influence aggregate demand and stabilize the economy. Government spending and taxes affect economic activity.