2.5.3 Trade (business) Cycle ✅

Question 1

Draw the trade business cycle?

Answer 1

Y axis = GDP
X axis = time
Straight trend line.
Boom
Slowdown
Recession
Recovery

Question 2

What is the difference between depression and recession? What one is more serious?

Answer 2

Depression is a prolonged slump where real GDP falls by 10% from peak. However Recession is a decline in GDP for 6 months.
Depression is more serious.

Question 3

What does the trade cycle demonstrate?

Answer 3

Reoccurring trends in economic growth.

Question 4

How is the cycle influenced? ( to be a boom or recession)

Answer 4

By demand and supply side shocks.

Question 5

What are the two types of trade cycles?

Answer 5

Mild (GDP doesn’t fall but also doesn’t grow as much as the trend).
Extreme (shown by the diagram).

Question 6

What are the characteristics of a boom? (Only one bad one)

Answer 6

• High economic growth.
• Lower unemployment.
• Improved gov budget.
• Higher firm and consumer confidence.
• Demand pull inflation pressure.

Question 7

What are the characteristics of a recession?

Answer 7

• Lower consumption, investment and imports.
• lower inflationary pressure (deflation risks).
• High unemployment.