Business Cycles, Recession, Depression

Business cycles are the typical ups and downs in an economy. These ups and downs are due to increases and decreases in economic growth, more specifically real GDP per capita. Positive growth indicates expansion (increase) in the business cycle, and negative growth results in a contraction (decrease) in the business cycle. Seen over a longer period of time, the average growth, or growth trend, shows slow, steady economic growth.


The Business Cycle – Graphically

Business_Cycle_Diagram.png


http://sparkcharts.sparknotes.com/economics/macroeconomics/section4.php


History

In 1875, William Stanley Jevons observed that in Agrarian (agricultural) society, there was a “cycle” of good years and bad years of harvest, depending on the sun. Based on his observations, Jevons was able to develop his Sunspot Theory.

Jevons saw that in years with more solar flares, crop yield suffered, thus Gross Domestic Product was lower and the business cycle was in its contraction stage. On the other hand, in years with fewer solar flares, crop yield was good and GDP was higher, so the business cycle was in its expansion stage.


Steps in the Business Cycle


Steps_in_Business_Cycle_Diagram.png

Green = Expansion Stage Red = Contraction Stage


Related Terms

It is considered a recession when the economy goes through a period of contraction for two consecutive quarters (or 6 months). A new measurement is being considered for the term, basing it on an increase of 1.5% or more to the unemployment rate.

In worse cases, a depression is when that contraction lasts at least two years (or 8 quarters).


The following article discusses the predicted recovery in British Columbia’s consumer spending in 2011: Shoppers Have Found Their Wallets At Last, And They're Opening Them