A Typical Business Cycle

The business cycle is a collection of economic growth phases.

Shapes

• Expansion
• Peak - The highest point before a recession
• Recession
• Trough - The lowest point at the end of a recession. Right before recovery

$$ \text{Expansion} \rarr \text{Peak} \rarr \text{Recession} \rarr \text{Trough} $$

Depression

A depression is an especially long and lengthy recession.

Output Gap

$$ \text{Output Gap} = \text{Current Output} - \text{Potential Output} $$