AP Macroeconomics / Economic Indicators and the Business Cycle
Lesson
Inflation and the ups and downs of the cycle
A price index tracks the cost of a basket. The business cycle tracks how busy the economy is.
Learning goals
- Compute a simple inflation rate from a price index.
- Name expansion, peak, recession, and trough in words.
Explanation
A price index compares the cost of a basket of goods to a base period. Inflation is the percent rise in that index. Unexpected inflation helps borrowers who repay with less valuable dollars and hurts lenders. Deflation is a falling price level, not merely a slower rise.
The business cycle is the irregular swing of real output around a longer growth path. Expansions raise output and usually tighten the labor market. Recessions shrink output and raise unemployment. Peaks and troughs are turning points, not moral grades.
Key terms
- Inflation. A sustained rise in the general price level, measured with a price index.
- Recession. A period of falling real output and weaker labor-market conditions.
Common mistakes
- Confusing a high price level with a high inflation rate.
- Treating the cycle as a regular clock instead of an irregular pattern.
Practice
Original Marlow Works items. Check the answer explanation after you try.
Nominal GDP rises from one year to the next while real GDP is unchanged. Which interpretation is best?
Original Marlow Works item — not a College Board question.
Take your time—this is practice, not a test.
Answer explanation
Prices are high but have not changed this year. Is inflation high?
Answer. No. Inflation is the rate of change of prices, not how high they already are.
A high index can sit still. Inflation would be near zero.
Related resources
External links with reuse status. Marlow Works is independent and does not copy restricted exam or textbook material.
Official / link only
AP Macroeconomics course page
Official six-unit framework for national income and policy models.
College Board · All rights reserved · accessed 2026-10-01
Open sourceOfficial / link only
FRED economic data
Federal Reserve economic data. Terms vary by series; do not scrape or ingest.
Federal Reserve Bank of St. Louis · Varies by series · accessed 2026-10-01
Open source