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. In terms of production possibilities, production of goods during recessions, troughs and recoveries are not presumed to be productive or allocative efficient since production is occurring within the interior region of the production possibilities curve. A gradual increase in the price level.