AP Macroeconomics AMSCO Guided Notes
2.7: Business Cycles
AP Macroeconomics Guided Notes
AMSCO 2.7 - Business Cycles
Essential Questions
- What are the phases of the business cycle and how do they affect economic output and employment?
I. What Is a Business Cycle?
1. What is a business cycle and how is it measured in terms of real GDP?
2. How do expansion and contraction differ in terms of economic activity?
3. What is a recession and how does it differ from a depression?
4. How did the severity and duration of the Great Recession compare to the Great Depression?
II. Phases of the Business Cycle
A. Expansion Phase
1. What economic indicators characterize the expansion phase?
2. Why might inflation gradually increase during expansion and what was the longest U.S. expansion?
B. Peak
1. What occurs at the peak of the business cycle and why is it difficult to identify in real time?
2. What actions might the Federal Reserve consider taking at a peak and why?
C. Contraction Phase
1. What economic indicators characterize the contraction phase?
2. How do real wages and nominal wages differ during a contraction and what is the typical duration of a recession?
D. Trough
1. What is a trough and why does it represent a turning point in the business cycle?
III. Output Gap and Employment
1. What is potential output and how does it differ from actual output?
2. What is an output gap and how does it change during expansion and contraction phases?
3. What economic consequences result from a negative output gap?
IV. Factors that Affect the Business Cycle
1. Why are business cycles inevitable in a market economy?
2. How can incorrect producer predictions about future demand lead to economic contraction?
3. What role do monetary policies, natural events, and political insecurity play in causing economic fluctuations?
4. How do trade barriers and government spending affect the business cycle?
Key Terms
recession
expansion
peak
contraction
trough
recovery
depression
output gap
actual output
potential output