The Business Cycle

Question 1

Canadas 3 economic goals

Answer 1

1. Growth measured by GDP
2. High employment (measured by the unemployment rate)
3. Price stability (measured by the inflation rate)

Question 2

GDP

Answer 2

GDP is a widely used measure of economic output.
EXPANSION
If GDP (after adjusting for inflation) goes up, the economy is growing (expanding).
CONTRACTION
If GDP goes down, the economy is contracting

Question 3

What is The Business Cycle?

Answer 3

Recurring periods of increased and decreased economic activity, or expansions and contractions.
The business cycle is characterized by four stages

Question 4

4 stages

Answer 4

• recession
• trough
• expansion
• peak

Question 5

Recession (Contraction)

Answer 5

• two consecutive quarters of negative GDP
• the economy slows down
• there is a decline in consumer purchasing
• an increase in unemployment
• Business revenues will decline, forcing more cutbacks in production and more layoffs
• businesses contract or close

Question 6

Trough

Answer 6

• the bottom of the cycle
• production and unemployment reach their lowest levels
• a deep trough is known as a depression
• the economy completes the recession and turns towards prosperity
• consumers can only postpone the purchase of some items for so long

Question 7

Expansion (Recovery or Prosperity)

Answer 7

• the economy begins to grow again
  increase in the level of consumption of products and sevices
• employment, wages, production, and profits expand
• investments are strong
• new businesses are created
• 2001-2007

Question 8

Peak

Answer 8

• top of the business cycle
• the economy stops expanding and begins contracting
• Increase in producers competing for capital funds puts pressure on interest rates, making consumers less likely to borrow money
• Demand starts to decline