2.5.3: Business (Trade) Cycle Flashcards
What is the Trade (Business) Cycle?
The cycle of economic growth rising/falling above/below the trend rate of economic growth (causing booms and recessions).
What is a boom?
A period where the rate of growth of real GDP is higher than the trend growth.
What is a slowdown?
A weakening of the rate of growth of real GDP.
What is a recession?
A fall of output in a period of at least 6 months (two quarters).
What is a recovery?
A period after a recession where real GDP starts to increase, and unemployment begins to fall.
What is a depression?
A prolonged downturn in the economy where a nation’s real GDP falls by at least 10%.
What are examples of demand-side shocks?
-Recession in a trading partner.
-Unexpected tax increases.
-Big rise in unemployment.
What are examples of supply-side shocks?
-Strikes/political turmoil.
-Natural disasters.
-Breakthroughs in production technology (e.g. AI).
What are the four characteristics of a boom?
-High employment.
-Inflationary pressures.
-Increased investment.
-Increased living standards.
What are the four characteristics of a recession?
-High unemployment.
-Deflationary pressures.
-Decreased investment.
-Fall in tax revenue & rise in welfare spending.
What is hysteresis?
When an event in the economy persists into the future, even after factors that led to the event had been removed.
What is an example of hysteresis?
The delayed effects of unemployment, even after the economy has recovered.
