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Grade 12 Economics Business Cycles Notes

Important!

  • Analysis and explanation of business cycles, and how they are used in forecasting.
  • Know the types of business cycles and what happens in the economy over a few years.
  • Understanding the different phases of a business cycle can help individuals make lifestyle decisions, investors make financial decisions and government make appropriate policy decisions.

The composition and features of business cycles Key concepts in a table format

TermDescription

Business Cycle

Successive periods of increasing and decreasing economic activity / a time series showing repeated increasing and decreasing economic activity/ the recurrent (not periodic) pattern of expansion and contraction in the level of economic activity. Business cycle refers to the changes in the economy that produces a cyclical pattern that repeats itself every three to five years. It is also known as the economic cycle.

Recovery

When GDP begins to increase following a contraction and a trough in the business cycle; an economy is considered in recovery until real GDP returns to its long-run potential level.

Prosperity

Increased output and excessive economic activities following the recovery / economic growth rate on a year – to -year basis is positive, at an increasing rate.

A period between the trough and peak including both recovery and prosperity.

Expansion

A period between the trough and peak including both recovery and prosperity.

Recession

A negative economic growth for at least two successive quarters/ a decline in economic activity lasting more than a few months.
Depression
Continuous decrease in the production output and economic activities.

Contraction

A period between the peak and trough including both recession and depression.

Peak

The highest point between the end of an economic expansion (end of prosperity) and the start of a contraction (start of recession).

Boom

The period immediately before and through the upper turning point is known as the boom.

Real business cycle

An actual business cycle is obtained when the effects of irregular events, seasons and long-term growth trend are removed from the time series data.

Trough

The lowest point between the end of an economic contraction (end of depression) and the start of a expansion (start of recovery).

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