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


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


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.


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.


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


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. Financial Advisor

    What Is GDP?

    GDP is like a price tag on a country's output, and it measures the size of the economy. Find out what it means.
  3. Insights

    Is GDP Really an Accurate Measure of Economic Growth?

    What does GDP tell us about real economic growth or well-being? It turns out that the answer is quite different than what you might expect.
  4. Insights

    Recession And Depression: They Aren't So Bad

    Financial downturns are part of the economic cycle and may have important long-term benefits.
  5. Insights

    How To Calculate The GDP Of A Country

    A nation’s gross domestic product measures the monetary value of all of the goods and services it produces.
  6. Insights

    Why Investors and Economists Care About GDP

    Gross Domestic Product is the total dollar value of all goods an economy produces over a given time.
  7. Trading

    Calculating the GDP Price Deflator

    The GDP price deflator adjusts gross domestic product by removing the effect of rising prices. It shows how much an economy’s GDP is really growing.
  8. Investing

    Business Cycle

    The business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, ...
  9. Insights

    Explaining Economic Indicators

    Investors use economic indicators to gauge investment opportunities and judge the overall health of an economy.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center