Business Cycle Vocabulary

Peak: Highest point of real GDP. Greatest amount of spending and lowest amount of unemployment. In this phase, inflation becomes a problem.

Expansion: Recovery stage. Real GDP is increasing due to an increase in spending and decrease in unemployment.

Contraction/Recession: Real GDP  declines for 6 months due to a reduction in spending and increase in unemployment .

Trough: Lowest point of real GDP. Least amount of spending and highest unemployment.