Business Cycle Flashcards
What does business cycle depict?
rise and fall of output (production of goods and services) over time.
4 phases of business cycle?
Peak
expansion
trough
contraction
What is output defined as
Output is defined as Real GDP
Maximum potential of economy is?
level of output that an economy can sustainably achieve using all of its resources – without putting excessive upward pressure on prices – inflation.
What is economic expansion phase characteristics?
increase in production/output
decrease in unemployment
increase in wages
increase in consumer spending
Increase in production/output in expansion
As economy expands business will see more sales or increase in demand for their product, they will produce more goods to meet this demand.
INCREASE IN CONSUMER SPENDING DURING EXPANSION
AS PPl ar earning higher wages they spend ore moeny leading to increase in demand.
Decrease in unemployment in expansion
as business needs to produce more goods they need to employ more ppl leading to decline in unemployment
Contraction phase characteristics
decrease in production/output
increase in unemployment
decrease in wages
decrease in consumer spending
wages in expansion phase
coz business is doing well they attract/keep workers by offering higher wages.
decrease in production during contraction phase
business will experience decrease in sales and demand. business will respond by producing fewer goods
employment during contraction
as business dont need to produce as much goods as demand is decreased, then unemployment will increase
Wages during contraction?
coz business aint doing well they will lower wages and wokrers will bbe willing to accept as increase in unemployment will lead to bigger comppetition
consumer spending during contraction
coz ppl are earning lower wages, they spend less on goods. they may be concerned about losing their job so they will be likely to save rather than spend.
What are the 3 business cycle extreme phases
Boom
Recession
Depression
