Matthew_McCoy_Week_5_Chapter_26_Assignment - Matthew McCoy...

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Matthew McCoy ECON201 Week 5 Chapter 26 Assignment July 9, 2011 Professor John Volpe 1. What are the four phases of the business cycle? How long do business cycles last? Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer nondurables? The four phases of the business cycle are peak, recession, trough, and expansion. Each of the four phases is discussed below. PEAK: At a peak, business activity has reached a temporary maximum. Here the economy is near or at full employment and the level of real output is at or very close to the economy’s capacity. The price level is likely to rise during this phase (McConnell, Brue, & Flynn, 2011, p. 527). A peak in business activity was reached in March 2001, marking the end of an expansion and the beginning of a recession (NBER, 2001). RECESSION: A recession is a period of decline in total output, income, and employment. This downturn, which lasts 6 months or more, is marked by the widespread contraction of business activity in many sectors of the economy. Along with declines in real GDP, significant increases in unemployment occur. The most recent recession occurred from December 2007 – June 2009, lasting for TROUGH: In the trough of the recession or depression, output and employment “bottom out” at their lowest levels. The trough phase may be either short-lived or quite long (McConnell, Brue, & Flynn, 2011, p. 527). The most recent trough in
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the U.S. economy was in June 2009, which was announced by NBER September 20, 2010 (NBER, 2010). EXPANSION: A recession is usually followed by a recovery and expansion, a
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Matthew_McCoy_Week_5_Chapter_26_Assignment - Matthew McCoy...

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