Phases of the Business Cycle

Module 14 Lesson Two Assignment

Prosperity (Peak)

During the prosperity phase of the business cycle, the economy is in a great condition. Unemployment rates are low, and consumers have a lot of confidence in the future of the economy. This leads to more purchases, and more demand. Producers will expand their business to benefit the most from the marketplace opportunities. This means high levels of output and trade. CPI, GDP, and Per Capita GDP are also high. Since there are so many consumers, it makes it easier to get a loan. This phase of the business cycle would have a positive effect on the lives of Americans because there would be more supply, and more money going around.

Recession (Contraction)

This phase of the business cycle means the economy is sloping downward for up to 6 months or longer. Consumers often wait to make major purchases, and only buy the basic needs of life and the lowest prices they can find, rather than satisfying their wants. People have little to no confidence in the economy. Producers will often cut their workforce and slow down their production. Trade decreases and investment plans get cancelled. CPI, GDP, and Per Capita GDP decrease. Along with this, banks decrease their credit, making it harder to get a loan. This phase will have a negative effect on Americans lives because many of them will be out of a job, or about to lose their job.

Depression (Trough)

This phase of the business cycle can often be caused because of a recession. During this phase, there is a high unemployment rate and many people are short of money. Producers will create less goods and services because they have little to no consumers who can afford their goods. Trade is very low. CPI, GDP, and Per Capita GDP are at an all time low. Banks will even further decrease the amount of credit they have, making it even harder to get a loan. This phase will have a negative effect on the lives of Americans because almost all Americans would be out of a job, poor, and living on just the bare essentials.

Recovery (Expansion)

During the recover phase, consumers start buy lots of items again, satisfying their needs and wants. People start to get jobs again and a steady income. Businesses are looking for new workers because they want to create more goods and services. Because of this, spending increases. Businesses also begin to invest and trade more. CPI, GDP, and Per Capita GDP begin rise again. Banks also begin to reacquire more credit, once again making it easy to get a loan. This will have a positive effect on Americans lives because their lives will start to go back to normal and many of them will begin to pick up work and start making money.