Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Peak Phase The peak phase is the phase in which the economy reaches its peak or highest point in the business cycle and is followed by a decline in output and demand. This phase is marked by several economic indicators such as peak production, stable or declining demand and prices, low unemployment, and possibly rising inflation. In this phase, production capacity has reached its limit, the demand for products and services is very high, and the company may have difficulty meeting this demand. Prices of goods and services may become more expensive due to high demand and limited supply. However, while this peak phase appears to be favorable, it can trigger negative effects. Limited supply of goods and services can trigger inflation, in which prices rise above levels acceptable to society. In addition, price increases can result in reduced purchasing power and demand, which in turn can reduce production and reduce output. After the peak phase, the economy enters into a contraction phase, which usually lasts for several months to several years. In this phase, output and demand decrease and unemployment increases. After reaching a peak, the economy then enters a contractionary phase. In this phase, economic growth slows down, economic activity declines, and productivity declines. Companies are reducing production and cutting costs, which often means reducing the size of the workforce. Consumers begin to restrain spending, and the stock market may experience a price drop. Central banks can respond by raising interest rates to reduce demand and control inflation. The contraction phase usually lasts shorter than the expansion phase, and is usually followed by a period of adjustment or stagnation before the economy begins to recover back into the expansion phase. During the contractionary phase, the government can respond by increasing spending to stimulate economic growth or by lowering taxes to increase consumption. The contraction phase can also progress into a recession or even an economic depression if the economic downturn is very severe and continues for a long period of time. An economic depression occurs when an economic downturn is deep and continuous, with high unemployment rates, negative economic growth, and mass corporate bankruptcies. In the peak phase, economic activity begins to show symptoms that can lead to an economic recession in the future. Some of the signs seen in this phase include: 1. Decreased consumer and investor confidence In the peak phase, consumers and investors start to lose faith in the economy as they see signs of a future economic slowdown. This causes them to reduce their spending and investment, which in turn reduces demand and overall economic activity. 2. Inflation As demand continues to increase while supply remains constant or even decreases, the prices of goods and services begin to increase. This is caused by increasing production costs and increasingly fierce competition. The price increase causes consumer purchasing power to decrease, which in turn will accelerate the economic slowdown. 3. Economic overheating The peak phase is often caused by economic growth that is too fast and exceeds the production capacity of the economy. This can lead to problems such as shortages of labor and raw materials, as well as increased production costs. An imbalance between demand and supply can trigger an economic slowdown. 4. Increase in interest rates To prevent higher inflation, the central bank often raises interest rates. This aims to reduce demand and also to keep the value of the currency from falling. The peak phase is the phase in which the economy reaches its highest level and economic growth begins to slow down. In this phase, economic activity tends to reach the highest level, namely with low unemployment rates, increasing inflation, and increasing prices of goods and services. The peak phase usually occurs when aggregate demand reaches its highest level, but aggregate supply cannot adjust quickly to meet the high demand. During the peak phase, the tendency of consumers and companies is to spend their money more quickly, because they believe that economic growth will continue. However, monetary policy usually becomes tight in this phase to prevent excessive inflation. The peak phase may last for some time, but at some point, economic growth will begin to slow down and enter a contractionary phase. There is no set time period for the peak phase, as it depends on many factors, including monetary and fiscal policies, consumer demand and global conditions.