Ch.6

What happens in the recession phase of the business cycle?

Following the peak, production employment and income decline

capital

Manufactured goods that are used to produce other goods and services

How do we know when economy is in a recession?

No official beginning or end to a recession, defined as two consecutive quarters of negative real GDP growth. That is six months of falling GDP.

What happens during the expansion phase of the business cycle

Production, employment, and income are increasing.

Effect of the business cycle on the inflation rate

The inflation rate usually decreases during recessions and usually increases by the end of economic expansions.

long-run economic growth

The process by which rising productivity increases the average standard of living

effect of recessions on the inflation rate

Towards the end of a typical expansion, the inflation begins to rise. Recessions cause the inflation rate to fall. by the end of a recession, inflation rate is below what it had been at the beginning of the recession.

How recessions affect the unemployment rate

Unemployment rises during recessions and falls during expansions. The reluctant of firms to hire new employees as well as the re entry of discouraged workers