Reading the economic cycle
| English | Español |
|---|---|
| recession/rɪˈseʃn/ | recesión |
| recovery/rɪˈkʌvəri/ | recuperación |
A decision you can investigate
- A furniture factory first runs overtime, then receives fewer orders, then lays off workers. Later it recruits again.
- The economy can move through a cycle rather than grow smoothly.
Build the explanation
- A boom has high activity; a downturn means activity is weakening. A recession 经济衰退 is a significant period of falling economic activity; two consecutive quarters of falling real GDP is a common practical indicator. Recovery 经济复苏 is renewed growth after the low point.
- Falling orders can reduce labour demand and raise cyclical unemployment. Recovery can reverse this. Demand-driven inflationary pressure often rises near capacity in a boom and weakens in a downturn.
Work through the evidence
- A fictional quarterly real-output index moves 100, 104, 102, 99, 101. Growth is 4%, then about −1.92%, then about −2.94%, then about 2.02%.
- The two falls form a recession under the common two-quarter indicator; 99 to 101 is recovery. Output is still below the earlier 104 peak. An economy can therefore recover while unemployment remains above its boom level.
Which interval has falling real output?
The index decreases by 2 in the second interval.
Growth slows from 4% to 2%. What follows?
Both rates are positive.
A recovery always returns output to its previous peak in one period.
A rise from the trough may leave output below the previous peak.
Test the limits
- A slowing positive growth rate is not the same as falling output. Recovery need not immediately restore all lost jobs.
- Inflation can remain high during a downturn if production costs rise. The diagram describes real output, not a guaranteed path for every price or worker.
Why may unemployment rise in a downturn?
Reduced production demand can reduce hiring and employment.
Apply and explain your answer
- Why is the final period recovery even though output remains below the old peak?
- Output is increasing from the low point; recovery describes its direction, not full restoration.
Match the terms to their meanings.
Each term describes a specific mechanism in this lesson.
Use the terms precisely
- recession: A significant period of declining economic activity.
- recovery: Renewed growth in activity after a downturn or low point.
A fictional quarterly real-output index moves 100, 104, 102, 99, 101. Growth is 4%, then about −1.92%, then about −2.94%, then about 2.02%. The two falls form a recession under the common two-quarter indicator; 99 to 101 is recovery. Output is still below the earlier 104 peak. An economy can therefore recover while unemployment remains above its boom level.
A slowing positive growth rate is not the same as falling output. Recovery need not immediately restore all lost jobs. Inflation can remain high during a downturn if production costs rise. The diagram describes real output, not a guaranteed path for every price or worker.
A boom has high activity; a downturn means activity is weakening. A recession is a significant period of falling economic activity; two consecutive quarters of falling real GDP is a common practical indicator. Recovery is renewed growth after the low point.