Notes

Provide legal and social structures
 Maintain Competition
 Provide public goods and services
 Redistribute Income
 Correct side effects of growth
 Stabilize the Economy
The business cycle refers to the entire economy, not just individual businesses.
The four phases of the business cycle are (A) expansion, like the upward climb of the roller
coaster. During the expansion phase, Gross Domestic Product, or GDP, is increasing. Usually, this
also means that the rate of inflation is increasing while the unemployment rate is decreasing.
The momentary pause at the summit is the (B) peak, where production reaches the highest current
level. This is a time when the inflation rate is at it’s highest.
Then comes the (C) contraction with decreasing economic activity, similar to the downslide of
your cart. During a contraction, unemployment rises while inflation falls.
Finally, the (D) trough is the lowest point of the roller coaster ride and of the business cycle. The
trough is the transition from a contraction to an expansion phase and thus the worst point in a
period of decline. Each full cycle of the phases typically lasts between three to five years.
Government Functions in the Economy
Ultimate Roller Coaster-Business Cycl