Phases of the Business Cycle

Expansion

Peak

Contraction

Trough

GDP/GNP numbers are on the rise

Highest point of economic expansion

Lowest point of economic contraction

GDP/GNP numbers are on the decline

Degree of ContractionsRecession

◦Prolonged economic contraction 2 consecutive quarters of negative

growth

Depression◦Recession that is especially long and

severeStagflation

◦Decline in real GDP with inflation◦China

Fast growth with deflation

Recent US cycles

1980

1990

2000

1-2 years of correction

5-8 years of growth

Efficiency Capital Deepening

◦Process of raising capital per worker◦Stock investment makes money

available for companies to spend◦Government spending on the national

debt takes available investment money away

Technological Progress◦Growth – (capital + labor)

Depreciation ◦Loss in value of capital goods

R & D GraveyardDifficult to get funding

GovernmentFunding

BusinessFunding

Loss of Funding

Innovation TheoryConceptual

CommercialProductionEngineered

Many Projects Die