Business Cycle - BusinessCycle :peak.Contraction,trough,expansion,andpeak o

Business Cycle - BusinessCycle...

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Business Cycle: Swings in national economic performance Economy naturally fluctuates Characterized by 4 phases:  peak. Contraction, trough, expansion, and peak Reasons for  contraction : o Consumers exhaust their purchasing patterns by buying durable goods that last a long time…they no longer need other goods o During an expansion, firms compete for loanable funds and drive up  interest rates This discourages people from buying goods and getting loans o When AD begins to exceed the economy’s capacity to produce, inflation  occurs Reduces the REAL income of consumers o Tight Monetary policy Recession: o Occurs when REAL GDP growth is negative or is declining for more than 
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