Business Cycle

Question 1

What is the economic cycle?

Answer 1

The economic cycle involves periods of economic growth (booms) with increasing GDP, employment, and consumer confidence, followed by periods of economic contraction (busts/recessions) with falling GDP, rising unemployment, and declining confidence.

Question 2

How can the government minimise fluctuations in the economic cycle?

Answer 2

The government can use fiscal policy (government spending and taxation) and monetary policy (actions by the Reserve Bank of Australia, such as adjusting the cash rate) to minimise economic fluctuations.