EconomicsModule 2 of 8

Understanding Business Cycles

Concepts

Formulas

Decisions

Quiz Questions

Key Concepts

5 concepts covered in this module.

Business Cycle Phases

Expansion (trough to peak), Peak, Contraction/Recession (peak to trough), Trough. GDP growth fluctuates around trend.

Credit Cycles

Expansion: easy credit, rising asset prices. Contraction: tightening, deleveraging. Credit cycles amplify business cycles.

Leading Indicators

Signal future economic activity: stock prices, building permits, ISM new orders, yield curve slope, consumer expectations.

Coincident Indicators

Move with the economy: industrial production, employment, personal income, manufacturing sales.

Lagging Indicators

Follow the economy: unemployment rate, CPI, prime rate, average duration of unemployment, inventory/sales ratio.

Decision Frameworks

1 decision frameworks to guide your analysis.

How to identify the business cycle phase?

Leading indicators to forecast turning points
Coincident indicators to confirm current phase
Lagging indicators to confirm phase changes already occurred

Mind Map

Visual overview of how concepts connect in this module.

Business Cycles

Phases

Expansion

Peak

Contraction/Recession

Trough

Recovery

Leading Indicators

Stock market

Building permits

Yield curve

Consumer expectations

ISM new orders

Coincident

Industrial production

Employment

Personal income

Manufacturing sales

Lagging

Unemployment rate

CPI

Prime rate

Avg duration unemployment

Credit Cycles

Easy credit → expansion

Tight credit → contraction

Amplifies business cycle

Study Understanding Business Cycles

This module has 6 flashcards and 3 quiz questions to test your knowledge.

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The Firm and Market Structures

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Fiscal Policy