Upswing recovery expansion

1
Phases of the Business Cycle
Peak (Upper turning point)
Downswingrecession
Upswingrecoveryexpansion
Trough (lower turning point)
2
Upswingbegins

• business depressed, inventories depleted
• slight pickup in demand, merchants begin
  inventory building,
• factory output increases, employment increases,
• demand increases, etc. gtcumulative effect

3
Upswingcontinues

• new plant equipment increases reinforces
  cumulative effect
• optimism,
• speculation, etc.

4
Upswingeffects

• Prices
• interest rates,
• security markets

5
Upper turning point

• over-expansion of inventory plant,
• profit margins squeezed
• declining orders to adjust
• expansion ceases,
• profits begin to fall

6
Upper turning point

• movement of interest rates
• security markets

7
Downswing(recession)

• inventory liquidation, declining orders,
• declining production,
• declining employment
• further declines in demand
• cumulative effect again

8
Downswing effects

• interest rates
• prices,
• profits
• growing pessimism

9
Lower turning point

• inventories to minimum levels,
• replacement demand
• consumption declines less than income
• government FR action
• cumulative downward spiral plays out,
• beginning of upturn