BUSINESS CYCLES

Business cycles have varying durations and intensities. Why are businesses so interested in the state of the economy? They want to be able to predict whether it's going into a contraction or an expansion. Making the right prediction can determine whether the business will be profitable or not.

The top of a cycle is called the peak. A very high peak, representing a big jump in output, is called a boom.Eventually an expansion peaks. When the economy starts to fall from that peak, there's a downturnin business activity. If that downturn persists for more than two consecutive quarters of the year, that downturn becomes a recession.In a recession the economy isn't doing so great; many people are unemployed and a number of people are depressed.

A large recession is called a depression.In general, a depression is much longer and more severe than a recession. Economists joke, "When your neighbor is unemployed, it's a recession; when you're unemployed, it's a depression." It is generally accepted that if unem­ployment exceeds 12 percent for more than a year, the economy is in a depres­sion.

The bottom of a recession or depression is called the trough. When the economy comes out of the trough, economists say it's in an upturn.If an upturn lasts two consecutive quarters of the year, it's called an expansion,which leads us back up to the peak. And so it goes.

T E X T 8

Read the text. Divide it into logical parts. Give the title to the text. Make a list of the economic terms used in the text. Be ready to explain what they mean.

A firm generally measures how busy it is by how much it produces. Economists use a corresponding concept, aggregate output, which goes under the name gross do­mesticproduct (GDP).GDP is the total market value of all final goods and services produced in an economy in a one-year period. It's probably the single most-used economic measure. The monetary value of all these goods and services can then be added up and compared with that of other countries. Since almost every country uses a different currency, the totals from each country have to be translated—by using currency exchange rates—to compare the size of one country's economy to another. When the international activities of a country's residents are added to GDP, a wider and more global measure of a country's total economic activity is created: gross national product or GNP. GDP and GNP try to measure every legal good and service that an economy produces. Government policymakers and businesspeople use GNP to forecast trends and to analyze the economy’s performance. Although the measure is well entrenched, many economists complain that it is sometimes misleading. The value of all shadow economy, for example, is not reflected in GNP figures. Revenues from illegal transactions are not included because they are not reported. Besides, the value of bartering goods and services cannot easily be measured because money is not used in the transactions.

Look through the text once again and answer the following questions:

1. How does a firm generally measure its activity?

2. What concept is used to measure how well the aggregate economy is doing?

3. What is the best way to measure the growth of the economy?

4. The totals from each country have to be translated by using currency exchange rates. What for?

5. What does GNP measure?

6. What is GNP used to forecast?

7. Why do many economists complain that GNP is sometimes misleading?

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