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

    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.
  2. Insights

    How Is the GDP of India Calculated?

    India is a front-runner among developing economies. Investopedia explains how India calculates its GDP, an indicator of economic health and performance.
  3. Insights

    Nominal vs. Real GDP

    GDP stands for gross domestic product and is the measure of the total economic output of the goods and services of a country.
  4. Investing

    Something Gross in GDP

    GDP is used to gauge the strength of the economy, but what is it actually measuring?
  5. Insights

    4 Countries in Recession and Crisis Since 2008

    See which major world economies haven't recovered from the global recession in the early 21st century, including a long-stagnant industrial power in Asia.
  6. Insights

    The Importance Of Inflation And GDP

    Learn the underlying theories behind these concepts and what they can mean for your portfolio.
  7. Trading

    Market Cycles: The Key to Maximum Returns

    You need to understand the various phases of the market cycle to avoid bubbles and make the best investments.
Frequently Asked Questions
  1. What are the three phases of a completed initial public offering (IPO) transformation process?

    An initial public offering (IPO) represents a private company's first offering of its equity to public investors.
  2. After an initial public offering, does a company profit from increases in its share price?

    The short answer is "no." To understand why, you have to know how the market works.
  3. What is the difference between the equity method and the proportional consolidation method?

    Discover the differences between the equity method and the proportional consolidation method of joint venture accounting, ...
  4. What costs are not counted in gross profit margin?

    Gross profit margin is the percentage of revenue that exceeds the cost of goods sold for a company. However, not all expenses ...
Trading Center