2.5.3 - Trade (Business) Cycle

Question 1

What Does The Trade Cycle Look Like?

Answer 1

Question 2

What Are The 4 Stages Of The Trade Cycle?

Answer 2

~ Boom.

~ Recession.

~ Slump.

~ Recovery.

Question 3

What Is Meant By ‘Recession’?

Answer 3

Two successive quarters of negative growth.

Question 4

Describe A Boom
(7 Points)

Answer 4

~ Growth is faster than trend, positive output gap.

~ High profits.

~ Low unemployment.

~ High consumer and business confidence.

~ Higher demand for imports, due to higher incomes.

~ Rising tax revenues.

~ However, demand pull inflation may occur.

Question 5

Describe A Recession & A Slump
(6 Points)

Answer 5

~ Declining AD.

~ High unemployment.

~ Falls in consumer and business confidence.

~ Lower inflation.

~ Loose policy, to stimulate AD.

~ Low demand for imports.

Question 6

Describe A Recovery
(3 Points)

Answer 6

~ Rising consumer and business confidence.

~ Higher investment.

~ Lower unemployment.

Question 7

Why Are There Fluctuations In Actual Growth?
(3 Points)

Answer 7

~ Due to shocks, as nobody can predict them.

~ Happens on the demand side (Factors that reduce AD).

~ Happens on the supply side (Factors that reduce AS).