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Economic topic by topic theme 2-3 > 2.5 The Economic Cycle > Flashcards

2.5 The Economic Cycle Flashcards

1
Q

Define the economic cycle

A

The tendency for an economy to fluctuate between upswing, boom, downturn and recession

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2
Q

Give the 5 stages of the economic cycle

A

Upswing, boom, downturn, recession, recovery

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3
Q

Define economic boom

A

A period of rapid economic growth linked with rising demand and lower unemployment

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4
Q

Define economic downturn

A

Where people reduce spending, causing a fall in aggregate demand, thus reducing income and government revenue

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5
Q

Define recession

A

Where firms cut output due to low demand which reduces employment and lowers GDP

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6
Q

Define stagflation

A

A very bad combination of falling GDP and high inflation

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7
Q

Define what is meant by a ‘leading indicator’

A

Early signs of direct economic action such as the state of consumer confidence

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8
Q

Definer what is meant by a ‘lagging indicator’

A

Measures that are slow to reflect the current state of economic activity (e.g. employment levels)

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9
Q

Give 3 evaluation points on how a recession could be positive

A
  • Sales of inferior goods rise
  • Inflation is normally low
  • Scope to employ a higher skilled workforce
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10
Q

Define circular flow of income

A

Connections between different sectors of our economic system focusing on goods and services and factors of production between firms and houselholds

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11
Q

Give 3 injections into the circular flow of income

A

Investment
Exports
Government Spending

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12
Q

Give 3 leakages from the circular flow of income

A

Savings
Imports
Taxes

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13
Q

Define injection in relation to the circular flow of income

A

Additions to the link between firms and households

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14
Q

Define leakage in relation to the circular flow of income

A

Ways in which income escapes from the circular flow of income

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15
Q

Define Aggregate demand

A

Total demand for goods and services in the economy

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16
Q

Give the equation for AD

A

AD = C + I + G + (X - M)

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17
Q

What is the biggest component of AD?

A

Consumer Spending

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18
Q

How does investment boost AD?

A

Spending on capital goods increases the productive capacity of the economy

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19
Q

How does government spending boost AD?

A

Direct investment, indirect grants, welfare payments

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20
Q

How does the balance of payments boost AD?

A

Exports are counted as domestic demand

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21
Q

Define fiscal policy

A

The use of government spending, taxation and borrowing to influence the pattern of economic activity

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22
Q

Define monetary policy

A

The use of interest rates to influence the supply of money and borrowing to influence economic activity

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23
Q

Define aggregate supply

A

The total quantity of output in the economy at a given price level

24
Q

In which part of the aggregate supply graph is there lots of spare capacity in the economy?

A

Far left, under the curve

25
In which part of the aggregate supply graph is there very little spare capacity in the economy?
Far right, under the curve
26
Give the 3 things that impact Short-run Aggregate Supply
- Employment costs - Cost of other inputs - Impact of government
27
How do employment costs, other inputs and the impact of the government impact short-run aggregate supply?
The higher the cost, the lower output will be
28
What is meant by long-run aggregate supply?
The long-term ability for an economy to produce goods and meet demand
29
Give the 5 factors of long-run aggregate supply
- Productivity of labour - Labour market participation - Innovation and enterprise - Capital investment - Supply constraints
30
How does higher productivity boost AS?
Output per worker increases so more products are produced in the same time
31
What is meant by labour market participation?
The number of people in the workforce
32
How do supply constraints impact long-run aggregate supply?
Demand for scarce resources forces prices up
33
Give 3 possible positive impacts on businesses of inflation
- Real value of loans eroded - Assets are made more valuable - Spending on inferior goods increases
34
Give 3 negative impacts of inflation on businesses
- Real value of savings eroded - Uncertainty can postpone expansion plans - 'wage price spiral' as workers demand higher wages
35
What is meant by the 'wage price spiral'?
Increasing prices caused by inflation leading to staff demanding higher wages, reducing international competitiveness
36
Define inflation
A sustained increase in the general price level
37
Define deflation
A sustained fall in the general price level
38
Define disinflation
A reduction in the rate of inflation
39
Define nominal income
A measure of income that doesn't take inflation into account
40
Define real income
A measure of income that does take inflation into account
41
What is the RPI?
A measure of income weighted on the collection of goods and services bought including mortgage payments
42
What is the CPI?
A measure of income weighted on the collection of goods and services bought excluding mortgage payments
43
What does demand-pull inflation come from?
An increase in AD
44
What does cost-push inflation come from?
A reduction in AS
45
Define unemployment
The number of people willing and able to work at a given price rate without a job
46
Define underemployment
Those who aren't working their desired hours or are overskilled for their job role
47
What is the claimant count?
The number of people claiming jobseekers allowance
48
What is the other name for the ILO?
Labour Force Survey
49
What is the ILO (Labour Force Survey)?
Sample data based on counting those actively seeking work
50
Name the 5 types of unemployment
- Frictional - Seasonal - Structural - Geographical - Cyclical
51
What is meant by frictional unemployment?
Temporary unemployment due to moving between 2 jobs
52
What is meant by structural unemployment?
Long-term unemployment caused by changes in industry (e.g. the UK stopping coal mining)
53
What is meant by geographical unemployment?
Where jobs are available but not in your local area so you may have to commute far or move to get them
54
What is meant by seasonal unemployment?
Unemployment arising from the uneven pattern of activity in some industries
55
What is meant by cyclical unemployment?
Unemployment from declines in AD during the downturn of an economic cycle

Economic topic by topic theme 2-3 (6 decks)

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