What does the Y-axis of the business cycle typically represent?

The Y-axis of the business cycle typically represents GDP, or Gross Domestic Product. This is because the business cycle charts the fluctuations in economic activity over time, and GDP is a primary indicator of overall economic performance. It measures the total value of goods and services produced in a country, reflecting the health of the economy.

During different phases of the business cycle, such as expansion, peak, contraction, and trough, GDP will show variations that indicate the performance and direction of the economy. As the economy expands, GDP increases, and during contractions, GDP decreases. Tracking these movements provides valuable insights into economic trends and informs decisions for businesses, policymakers, and investors.

Time is usually represented on the X-axis, allowing observers to see how GDP changes over specific periods. Other indicators like unemployment rate or consumption can influence GDP but are not directly represented on the Y-axis in this context. Understanding the relationship between GDP and the business cycle is crucial for analyzing economic conditions.