Boom, Bust, Repeat: Understanding Economic Cycles

Characteristics:

• Rising GDP
• Low unemployment
• Increasing consumer confidence

Causes:

• Low interest rates
• Strong demand and investment

Aftermath:

• Inflation may rise
• Economy approaches its peak

Characteristics:

• Economy hits its highest output level
• Inflation often high
• Labor market tight

Causes:

• Overheating economy, excessive demand

Aftermath:

• Growth slows
• Tipping point toward contraction

Characteristics:

• Falling GDP
• Rising unemployment
• Decreased spending and production

Causes: 

• High interest rates
• External shocks or loss of confidence

Aftermath:

• Business closures
• Pressure for policy intervention

Characteristics:

• Economy hits bottom
• High unemployment
• Low inflation or deflation

Causes:

• Stabilazitaion policies take effect
• Market forces reset

Aftermath:

• Economy begins to recover
• Sets stage for next expansion

A recession is a short-term economic decline (often 2+ quaters of negative GDP).

• Common symptoms: lower spending, job losses, reduced production.

A depression is far more severe and long-lasting.

• The Great Depression (1930s) is the most famous example.

Recession:

• Duration: Months
• Decline: moderate
• Recovery: relatively fast
• Rarity: happens regularly

Depression:

• Duration: Years
• Decline: extreme
• Recovery: very slow, often painful
• Rarity: Rare, historically significant

Economies rise and fall — that’s normal.

But knowing the difference between a temporary recession and a deep depression helps us understand how serious a downturn really is — and what kind of response is needed.

Recessions are quite short and not that severe, while Depressions are long-term and often shaking the whole economy.