The economy is operating at less than full production potential and significant cyclical unemployment exists. The duration of a recession is usually six months or more. The phase of the business cycle where real GDP is far below the production potential of the economy. Again, a significant GDP gap exists. If troughs are moderate to severe, the price level will decline to a low level.
Consumer confidence is generally low.
As firms anticipate low profit potential, incentives to invest will diminish and net investment will generally negative. Troughs can be short lived or quite long in duration. The phase of the business cycle where real GDP and employment are rising. The economy is expanding toward full capacity and the GDP gap will be reduced. As economic expansion occurs and scarce resources are used more and more intensively, the price level will generally rise before full capacity is reached.