2.5.3 The Trade Cycle Flashcards
what is the trade cycle
fluctuations in the level of economic activity in an economy over time
what is a boom
a period when the percentage rate of growth of real GDP is fast and higher than the long term trend
give some key potential features of a boom
- low unemployment
- rising inflation
- trade deficit on BoP
- positive output gap
- high consumer and business confidence
what is a slowdown
a weakening rate of growth, real GDP is still rising but at a slower rate
give some potential features of a slowdown
- disinflation
- slower investment and consumption
what is a recession
a period of at least 6 months when an economy suffers a fall in real GDP and aggregate output, employment, investment and confidence
give some key potential features of a recession
- rising unemployment
- disinflationary pressure
- lower consumer and business confidence
- less demand for imports
- less consumption and investment
what is a slump
a prolonged downturn in the economy, where a nation’s real GDP falls by at least 10%
give some key potential features of a slump
- high unemployment
- negative output gap
- low inflation rate
- increased risk of long-term unemployment and underemployment
what is a recovery
a phase after a recession, during which real GDP starts to increase and unemployment begins to fall
give some key potential features of a recovery
- unemployment begins to fall
- inflation may begin to rise
- increasing confidence
- spending and investment begin to rise
give an example of a recession
The Great Depression in the United States
give economic and social effects of a recession
- fall in confidence (a drop in animal spirits)
- rising cyclical unemployment
- lower rate of inflation, with risk of deflation
- rising fiscal deficit for the government
what are demand and supply-side shocks
- two different types of economic disturbances that can impact an economy’s equilibrium
- can lead to changes in various economic indicators such as prices, output and employment
what is the main impact of a demand-side shock
negatively affects spending
what is the main impact of a supply-side shock
affects production costs and aggregate supply
give some examples of demand-side shocks
- financial crisis
- economic downturn in a major trading partner
- unexpected tax increases
give some examples of supply-side shocks
- steep rise in oil and gas prices
- natural disasters
