2.5.1 the economic cycle Flashcards
What does the economic cycle refer to?
The stage of economic growth that an economy is in (through periods of booms and busts).
What happens to real output during periods of economic growth? What stage is this of the economic cycle?
It increases, and is known as the recovery stage.
What is a boom in the economic cycle?
When economic growth is fast, and it could be inflationary or unsustainable.
What happens during recessions?
Real output in the economy falls, and there is negative economic growth.
Governments might increase spending to try and stimulate the economy, which could involve spending on welfare payments or cutting taxes.
What may governments receive during periods of economic growth?
They may receive more tax revenue since consumers will be spending more and earning more.
They may decide to spend less, since the economy does not need stimulating.
What are the characteristics of a boom? [6]
- High rates of economic growth
- Near full capacity or positive output gaps
- (Near) full employment
- Demand-pull inflation
- Consumers and firms have a lot of confidence, leading to higher rates of investment
- Government budgets improve
What is a recession defined as in the UK?
Negative economic growth over 2 consecutive quarters.
What are the characteristics of a recession? [6]
- Negative economic growth
- Lots of spare capacity and negative output gaps
- Demand-deficient unemployment
- Low inflation rates
- Government budgets worsen
- Less confidence amongst consumers and firms
What do firms have to consider during fluctuations in economic activity?
How a rise or fall in average income will affect their sales, which is dependent on YED of their products. They must plan the quantity they want to sell and price their products at in response to this.
