Business Cycle (Economics)

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  • Short-run fluctuations of output and employment around a natural (long-run) rate. The business cycle has four phases, which may be sequentially referred to as (1) peak, (2) downturn (slowdown, or recession), (3) trough, and (4) recovery. Recessions could be mild or severe. A recession is charac terized by falling output and unemployment for approximately two consistent quarters or more. A severe recession, such as that of the 1930s, is known as a depression. Because prices are downwardly inflexible, they tend to drop when a recession is severe.

    The trough of a recession or depression is the prelude to recovery. This prelude may be either brief or long. The recovery is the phase of expansion when output and employment are on the rise. The correlation between expansion ...

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