2.5.3 Trade (business) cycle

Question 1

What is a trade (business cycle)?

Answer 1

A trade (business) cycle refers to the changes in real GDP that occur in an economy over time. This is actual growth.

Question 2

What are the four points in the cycle?

Answer 2

/Peak - Boom
/Slowdown - Downturn
/Recession
/Recovery

Question 3

What are characteristics of a recession?

Answer 3

/Two consecutive quarters (6 months) or more of negative economic growth
/Increasing/high unemployment
/Increasing negative output gap and spare production capacity
/Low confidence for firms/households
/Low inflation
/Increase in government expenditure perhaps leading to a great budget deficit

Question 4

What are characteristics of a boom?

Answer 4

/Increasing/high rates of economic growth
/Decreasing unemployment and increasing job vacancies
/Reduction of negative output gap or creation of a positive gap. Spare capacity is reduced or eliminated
/High confidence and more risky decisions taken
/High confidence and more risky decisions taken
/An improvement in the government budget as tax revenues rise and expenditure falls