Question

What is the difference between a recovery and an expansion?

Short answer

In terms of an economic cycle, recovery is a period of regrowth from a downturn towards a peak, while expansion is a phase where an economy goes beyond the recovery to new heights in real GDP. The difference lies in the strength and sustainability of positive economic growth.

Step-by-step solution

Define Recovery

In Economics, recovery is considered a phase in the business cycle where the economy moves from a trough (the lowest point in an economic downturn) towards a peak (the highest point in an economic upturn). Businesses and the economy as a whole begins to stabilize, and economic activity starts to pick up after a period of downturn or recession. It's a period of transitional regrowth in an economy.

Define Expansion

Expansion, on the other hand, is the phase of the business cycle where the real GDP of an economy increases past the recovery and on to a peak. In this phase, unemployment decreases, consumer confidence tends to increase, and companies report profit gains. It's a period of robust economic growth and prosperity.

Discuss the difference

Both recovery and expansion are positive phases in a business cycle. The key difference lies in the relative strength and sustainability of the growth. Recovery is the phase following a downturn when the economy is just beginning to climb back. Expansion, however, is the next phase when the economy not only recovers its lost ground, but also goes beyond the previous peak to reach new heights of economic output.