The Business Cycle Model

You are expected to be able to explain/analyze (AO2) and draw/apply (AO4) the business cycle (SL+HL)

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National Income Accounting

GDP and GNI

Appropriateness of GDP and GNI

Alternative Measures for Wellbeing

The Business Cycle

A business cycle is a model that describes short-term fluctuations of economic activity of a country, as well as the long-term general trend, over time.

What you need:

A peak: The stage at which economic activity is at the highest level. Unemployment is low, and confidence in the economy is high.
A recession: The stage at which real GDP decreases. Businesses fail, unemployment rises, and confidence is low.
A slump: The stage at which real GDP is at its lowest. Unemployment is high, and many businesses have closed down.
A recovery: When real GDP starts to rise again. Consumption, investment, and net exports start rising, increasing confidence and employment.
A boom: Real GDP rises. Components of aggregate demand rise. Price levels rise.
Real GDP on the y-axis and time on the x-axis.
A general trend arrow showing what happens in the long run.

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