Business Cycle

Question 1

Name the 4 parts of the business/trade cycle

Answer 1

1.Boom
2.Slump
3.Recession
4.Recovery

Question 2

What is a recession

Answer 2

when there is negative economic growth for 2 or more consecutive quarters (6 months)

Question 3

What increases when there are long run improvements in technology

Answer 3

Potential GDP/Economic Growth

Question 4

What is it called when Actual GDP is below Potential GDP

Answer 4

Negative output gap

Question 5

What is it called when Actual GDP is above Potential GDP

Answer 5

Positive output gap

Question 6

We can only have a output gaps in the … …

Answer 6

short run

Question 7

Why cant we have output gaps in the Neoclassical LRAS

Answer 7

Because they believe we are already using all resources to their full potential and we cannot produce below or above that potential

Question 8

What are the characteristics of a boom

Answer 8

-High animal spirits
-High economic growth
-Demand pull inflation
-Low unemployment (due to higher derived demand for labour
-Improved government budget (due to less benefits spending and more tax revenue)

Question 9

What are the characteristics of a recession

Answer 9

-Low animal spirits
-Low economic growth
-Deflation/low inflation
-High unemployment (due to low derived demand for labour)
-Worsened government budget (higher benefits spending,less tax revenue)