Business Cycle - Business Cycle alternating rises and...

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Business Cycle: alternating rises and declines in the level of economic activity - peak: buiness activity reaches a temporary maximum, employment is high, production is high, price level is likely to rise - recession: period of decline in total output, income, and employment - trough: period in recession where output bottoms out at its lowest level - recession is followed by expansion, where readl GDP, income, and unemployment rise Causation - fluctuations are driving by unexpected events firms and individuals may have trouble adjusting to, short-run price stickiness is widely believed to be a major factor in preventing the economy from rapidly adjusting to shock - usually forced to respond thourgh changes in output and employment rather than price - when productivity unexpectedly increases, the economy boomsl when it unexpectedly falls, it declines. - Others view it as a monetary phenomenon: when central banks produce more money than people expect, it causes inflationary things, employment rises, output goes up. When it makes less than expected, employment, prcies, output, declines - Most agree that immediate cause of cyclical changes in output and employment is unexpected changes in total spending.
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