Stages of the Economic Cycle: Understanding Contractions | Money Masters

Stages of the Economic Cycle: Understanding Contractions

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This post is Part Two of a three-part series explaining the four stages of the economic cycle: expansion, peak, contraction, and trough.

In Part One of this series, we talked about what an economic expansion is and how you can identify one. We also discussed the U.S. economic boom of the 1990s. In this post, we’ll move onto the stage of the economic cycle that is opposite an expansion: a contraction. Now that you understand what an economic expansion is, it will undoubtedly be easy to grasp the meaning of a contraction.

So Then What is an Economic Contraction?

If an expansion refers to a country’s GDP (the total monetary value of all the goods and services it has produced) growing for at least two quarters in a row, then it’s easy to conclude that when GDP declines for a minimum of two consecutive quarters, the economy is experiencing a contraction. Basically, an economic contraction is the opposite of an economic expansion.

So Then What is an Economic Contraction?

If an expansion refers to a country’s GDP (the total monetary value of all the goods and services it has produced) growing for at least two quarters in a row, then it’s easy to conclude that when GDP declines for a minimum of two consecutive quarters, the economy is experiencing a contraction. Basically, an economic contraction is the opposite of an economic expansion.

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