2.5.3 - Trade Cycle

Question 1

Boom

Answer 1

Part of trade cycle when rate of growth of real GDP is higher than long-term trend

Question 2

Recession

Answer 2

Part of trade cycle when an economy suffers fall in output, investment, employment, confidence for at least 6 months (2 quarters)

Question 3

Characteristics of a boom

Answer 3

Rising income, rising confidence, rising employment, rising wages, rising inflationary pressures, rising profits, rising trade deficit, accelerator effect

Question 4

Characteristics of a recession

Answer 4

Falling income, falling confidence, falling employment, stagnant wages, falling inflationary pressure, falling profits, falling trade deficit, falling investment

Question 5

Causes of recession

Answer 5

Recession in trading partner, higher interest rates, drop in confidence, fall in asset prices or credit supply

Question 6

Long term effects of recession

Answer 6

Rising structural unemployment, low rates of investment, persistent budget deficits, falling real wages, inequality,

Question 7

Legacy of recession

Answer 7

Hysteresis - permanent loss of national output, Creative destruction - economy bounces back, new businesses open