Business Cycle Flashcards
Describe a Business Cycle
Series of upward and downward movements in the level of economic activity of a country over a period of months or years
What are the two periods of business cycles
Expansion - Economic Activity increasing - Recovery and Prosperity
Contraction - Economy is falling - Recession and Despression
What are the two turning points of a business cycle
Trough - End of recession or depression
Peak - Upper turning point of a cycle - After a peak, economic activity decreases
What are the 4 phases of a business cycle
Recovery
Prosperity
Recession
Depression
How are business cycles measured
From Peak to Peak and Trough to Trough
What are the characteristics of a Recession
Negative economic growth rate for 2 consecutive quarters
Businesses reduce output
Reduction in income
Increase in unemployment rate
What are the characteristics of a Depression
A recession that has continued for a long time
Severe form of a recession
Large scale unemployment and severe shortages of goods and services
What are the characteristics of a Recovery
Economy starts to grow again
Starts slowly and speeds up over time
Gradual increase in demand and increase in output
What are the characteristics of a Prosperity
Increase in economic activity in a country
Increase in output, employment rate and wages
Standard of living improves
Official when an economy has grown for six consecutive months
Ends at a peak
What are the 5 ways of measuring a business cycle
The Dating System The Gross Domestic Product The Employment Growth Rate The Inflation Rate The Production Of Certain Goods And Services
What is the Dating System
Statistics recorded on a daily, weekly and monthly basis and then compiled quarterly
What is the GDP
Measure of the state of the economy
What is the employment growth rate
Figures compiled to show how many people are employed in the country and if there are changes in the number employed
What is the inflation rate
Figures for inflation rate are compiled by the SARB and show changes in prices. Gives an indication of where we are on the business cycle
What is the production of certain goods and services
Certain figures such as numbers of new buildings or amount of gold mined and gives an indication of where we are on the business cycle
What are the 3 business cycle indicators
Leading Indicators
Lagging Indicators
Coincident Indicators
What are Leading Indicators
Change direction before the economy itself changes
Used to predict what is going to happen to the economy
What are Lagging Indicators
Change a few months after the economy changes
Confirm the economy has changed
Example - Unemployment Rate
What are Coincident Indicators
Change at the same time as the economy
Give information about the state of the economy
Example - Company payrolls because wages and salaries increase when the economy is strong and decrease when the economy is weak
What are the two types of reasons for business cycles
Exogenous and Endogenous reasons
What are exogenous reasons
Causes that originate outside of the economy of a country
What are the 5 types of exogenous reasons
Natural Disasters Political Reasons Foreign Trade Weather Monetary Reasons
What are endogenous reasons
Causes that originate inside of the economy
What are the 3 types of endogenous reasons
Investment
Technological Change And Innovation
Savings
What are the 6 effects of business cycles
Changes in aggregate supply and demand
Changes in economic growth
Changes in employment rate
Changes in price / inflation rate
Changes in the level of the rate of exchange
Effects on people who are economically vulnerable
