Expansion

An expansion begins at the trough of the business cycle, the lowest point after a contraction, and continues until the economy reaches a peak. During this phase, real GDP rises, unemployment usually falls, businesses invest more and consumers spend more.

Early in an expansion, often called the recovery, the economy has spare capacity, so it can grow quickly without much inflation. As the expansion matures, unemployment falls further, businesses run closer to full capacity and wages and prices may begin to rise faster.

For example, after a recession ends, an economy might see several years of steady growth, with companies hiring, house prices rising and stock markets performing well.

Expansions can last for many years. Late in an expansion, central banks may raise interest rates to prevent the economy from overheating and inflation from rising too high. Expansions often end because of rising interest rates, financial imbalances or external shocks, after which the economy enters a contraction.