MAcro CHAPTER 2.7:

Business Cycles

CHAPTER SUMMARY

Over time, economies usually grow as long as there are no major, long-term disasters like civil wars. However, you also probably know that it is not always growing. There are times of rapid growth, and times where it actually shrinks. We call these up-and-down waves the business cycle. The basic idea of the business cycle can be seen in the chart below.

The business cycle shows the rise and fall of Real GDP (not nominal GDP) over time. When Real GDP reaches its highest point in a cycle, we call this a peak, and the bottom point of a cycle is called a trough. When the Real GDP curve is rising, an economy is expanding, and when the curve is falling, it is contracting. We have a few different terms for longer periods of contractions:

Recession: 6 months or more of economic contraction
Depression: 2 years or more of economic contraction greater than 10% (not every economist agrees on this definition, though)

Although recessions and depressions do happen, in the long run, we expect that the economy will follow the growth trend line (the straight, upward-sloping line). At this line, the economy is growing and experiencing full employment (unemployment = natural rate of unemployment).

CHAPTER VIDEOS

(Just section 2.7)

CHAPTER READINGS

AP Macroeconomics Unit 2.7 Business Cycles | FiveableMake sure you check out this study guide on business cycles with all the vocabulary you need for AP Macro unit 2.

Business Cycle & Macro Goals - AP/IB/College - ReviewEcon.comA primary focus of Macroeconomics is the business cycle. When we have a boom, times are good, but an economy that grows too fast can have high inflation. A stagnant economy, on the other hand, has little or no inflation (unless there is stagflation), but unemployment rises.

CHAPTER PRACTICE

Albert | Learn by doing | Grades 5-12 reading, writing, math, science, and test prepAlbert provides students with personalized learning experiences in core academic areas while providing educators with actionable data. Leverage world-class, standards aligned practice content for AP, Common Core, NGSS, SAT, ACT, and more.

Textbook

EXTENSION