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December-03-08
9:01 AM
Expansion
- Is a period of increase in consumer confidence and economic activity. It is made up 3 smaller stages
known as
○ Recovery
Is the first part of an expansionary phase. Consumer confidence starts to increase a little
people start to replace small items such as clothes and small appliances. This results in
business starting to replace or increase their inventory levels. Businesses start to increase
their output hiring more employees.
Unemployment is decreasing while inflation is occurring
○ Boom
Is the second part of an expansionary phase. Consumer's confidence starts to increase at a
faster pace buying more and more consumer goods. As businesses start to hire even more
people national incomes rise an unemployment levels fall. People now start to buy
consumer durable goods such as cars, houses. Resulting in businesses to start increase their
construction levels on homes, factories and stores. Businesses now also start to buy new
equipment and machines increasing their efficiency levels. This results in workers receiving
higher pay. Prices increase.
Unemployment levels fall approaching full employment, inflation increases at very high
rates
○ Peak
Occurs when expansion reaches a climax. Output starts to standstill and level off. Consumer
confidence starts to decline to the point where people start to stop their buying.
Contraction