The Business Cycle
All 8 The Business Cycle terms in the AP Economics glossary — each with a clear, exam-accurate definition. Tap any term for the full explanation, formula, and related interactive graph.
The business cycle is the fluctuation in economic activity over time, characterized by periods of expansion and contraction.
An expansion is a period of increasing economic activity, characterized by rising output, employment, and income.
An inflationary gap is the difference between actual real GDP and full-employment real GDP when actual exceeds full employment.
The output gap is the difference between actual real GDP and potential real GDP.
The peak is the highest point of economic activity in a business cycle.
A recession is a significant decline in economic activity lasting more than a few months.
A recessionary gap is the difference between full-employment real GDP and actual real GDP when actual is less than full employment.
The trough is the lowest point of economic activity in a business cycle.