Expansion

An economy, during an expansionary phase, will see an increase in overall business activity and output. Corporate sales, manufacturing output, wages and savings will all increase while the economy is expanding or growing. An economy cannot continue to grow indefinitely and GDP will top out at the peak in the business cycle. An economic expansion is characterized by:

  • Increasing GDP
  • Rising consumer demand
  • Rising stock market
  • Rising production
  • Rising real estate prices

Peak

As the economy tops out, the GDP reaches its maximum output for this cycle as wages, manufacturing and savings all peak.

Contraction

During a contraction, GDP falls, along with productivity, wages and savings. Unemployment begins to rise, the stock market begins to fall, and corporate profits decline as inventories rise.

Trough

The economy bottoms out in the trough as GDP hits its lowest level for the cycle. As GDP bottoms out, unemployment reaches its highest level, wages bottom out, and savings bottom out. The economy is now poised to enter a new expansionary phase and start the cycle all over again.

Recession

A recession is defined as a period of declining GDP, which lasts at least six months or two quarters.

Depression

A depression is characterized by a decline in GDP, which lasts at least 18 months or six consecutive quarters.

Securities Exam Training



Economic Indicators

Related Articles
  1. Insights

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  2. Insights

    The GDP and its Importance

    GDP is an accurate indication of an economy's size. Few data points can match the GDP and its growth rate's conciseness.
  3. Insights

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Insights

    How To Calculate The GDP Of A Country

    We explain how to calculate the GDP of a country using two different approaches.
  5. Insights

    Explaining The World With Macroeconomic Analysis

    Macroeconomists try to forecast economic conditions to help consumers, firms and governments make better decisions.
  6. Trading

    The Delicate Dance of Inflation and GDP

    Investors must understand inflation and gross domestic product, or GDP, well enough to make decisions without becoming buried in data.
  7. Insights

    How The GDP Of The US Is Calculated

    The US GDP may not be a perfect economic measure, but the ability to compare it to prior periods and other countries makes it the most applicable.
  8. Insights

    The World's Top 10 Economies

    A look at the top 10 economies in the world.
Trading Center