Resource Use through the Business Cycle

There are significant links between fluctuations in inventory, employment, and investment in physical capital with economic fluctuations.

The gap between the recession output (GDP_R) and the potential output (GDP_P) is an indicator of slack resources (unemployment for labor and idleness for physical capital).

When economic activity increases, companies are unlikely to immediately start the costly process of selecting and hiring new workers.

If enough new investment triggers an increase in aggregate demand, companies will start replenishing their inventories of finished products, thus increase the demand for intermediate products, which will further increase AD. (inventory rebuilding or restocking)