Economics Business Cycles Questions
Contraction in a business cycle refers to a phase of economic decline characterized by a decrease in economic activity, such as a decline in GDP, employment, and investment. During a contraction, businesses experience reduced demand for their products or services, leading to lower sales and profits. This often results in layoffs and higher unemployment rates. Contraction is typically accompanied by a decrease in consumer spending, as individuals become more cautious with their money. The contraction phase is followed by a trough, which marks the end of the decline and the beginning of a recovery phase in the business cycle.