2.5 Economic Cycle

Question 1

The Economic Cycle

Answer 1

The cyclical fluctuations in the state of an economy.
There are two main states of the economy: a boom and a recession.

Question 2

Boom

Effects on: AD, Inflation, Unemployment, Tax Revenue

Answer 2

When an economy’s real national output (RNO) is producing above its trend-growth rate.
* AD: high
* Inflation: high
* Unemployment: low
* Tax Revenue: high

Question 3

Recession

Effects on: AD, Inflation, Unemployment, Tax Revenue

Answer 3

When an economy’s real national output (RNO) is producing below its trend-growth rate and can lead to negative growth.
* AD: low
* Inflation: low
* Unemployment: high
* Tax Revenue: low

Question 4

Withdrawals

Answer 4

Things that internal economic agents do with their incomes:
Savings - commercial bank
Taxes - central bank
Imports - international trade

Question 5

Injections

Answer 5

Things that external economic agents do with their incomes:
Investment - commercial bank
Government Spending - central bank
Exports - international trade

Question 6

Aggregate Demand

Answer 6

The total Demand in the economy
AD = C + G + I + (X - M)
If the RNO increases, so does the GPL, causing inflation.

Question 7

Aggregate Supply

Answer 7

The total Supply in the economy
SRAS changes from supply shocks: raw materials, exchange rates, tax rates (on goods), employment
LRAS changes with max productive potential: tech advances, education, government regulation
If the RNO increases, the GPL decreases.

Question 8

Inflation

Question 9

CPI

Question 10

Indexation

Question 11

RPI

Question 12

Demand-pull

Question 13

Cost-push

Question 14

Wage-price Spiral

Question 15

Unemployment

Question 16

Underemployment

Question 17

Claimant Count

Question 18

ILO

Question 19

Structural Unemplyoment

Answer 19

q

Question 20

Frictional

Question 21

Cyclical

Question 22

Seasonal