Business Cycle Flashcards
Definition of cycle
A cycle is a process that is repeated
Business or economic activity moves in cycle
What is GDP
GDP is the dollar value of all final goods and services in a economy
The full name of GDP
Gross domestic product
The equation of GDP
GDP =C+I+G +(X-M)
What does each letter stand for?
C-consumption I-investment (business) G-government X-export M-import
What will change in the GDP equation when the economy is recession
The value of C and I will decrease
What will change in the GDP equation when the economy is in boom period
The value of C and I will increase
What the downturn means in the cycle ?
Falling GDP growth
What’s the effect to labour when it’s in downturn?
Increasing savings-consumers are less prepared to spend. They may be choosing to pay down previous debt
Less consumption-the direct result of more saving is less spending
What’s the effect to company when it’s in downturn?
Increased stock- as consumers buy less ,business remain full of unsold goods and services.
Lower order for new/replacement goods-business identify that sales are slowing so they reduce orders and are often forced to discount existing stock to clear it
What’s the effect to manufacture when it’s in downturn?
Lower orders force manufacturers to cut back production
Lower production leads to manufacturers reassessing their production schedule and resource planning
Lower resource requirements may be expressed as the lower need for labour
Employment begins to fall meaning that who have lost their job must cut back further on expenditures . Others who still have a job , see that the unemployment become a possibility for them too,they try to same more ,just in case.
What’s the effect to back when it’s in downturn?
Credit contract - there is often lower leading those who have borrow previously pay down their loans. Banks are less eager to lend money to
Business-because they can see that demand is falling and more business are likely to fail
Consumers- because employment is falling and there is more likelihood that people lose their jobs
The cycle continues until?
The economy moves from growing at a falling rate to contracting
What is recession
The period where economics contract are called recession
What is the recession in Australia
In Australia, a recession is a decline in real GDP for two consecutive quarters (6 months)
Why does government involve itself in the business cycle
Because one of the most powerful policy goals of government is economic growth
2 primary interventions of government used?
Fiscal policy
Monetary policy
What is fiscal policy described?
Fiscal policy is described within a document budget and in most countries the fiscal policy is announced once a year
The basic form of budget
Deficit budget-
government spending > taxation revenue
Balance budget
Government spending =taxation revenue
Surplus budget
Government spending < taxation revenue
What is fiscal policy
Fiscal policy ( government spending + taxation) Fiscal policy is the use of government spending and taxation to achieve policy goals
What is monetary policy
Monetary policy is the intervention by government authorities in money markets to control the supply of money with the objective
Of achieving policy goals
What is relationship between the interests rate and different period of economic
Recession-low interest rate
In order to encourage people borrow more money
Boom-high interest rate
In order to slow down the growth of economy
Demand
The willingness and ability of consumers to purchases goods and services
Supply
The willingness and ability of businesses to offer goods and services for sale
Downturn
A decline in economic activity
Upturn
An increase in economic activity
Consumption
Purchasing and using goods and services
Save
To put money aside to spend in the future
Balance of payments
The difference between the funds a country receives and those it pays for all international transaction
Gross domestic product
The total market value of all the goods and services produced in a country during a given period of time
Equilibrium
A state of balance,for example when supply is the same as demand
Deficit
An amount of money that is smaller than is needed
When spending exceeds revenue
Surplus
An excess “a quantity that is large than is needed “
Fiscal policy
Government actions concerning taxation and policy expenditure
Monetary policy
Government or central bank actions concerning the rate of growth of the money in circulation
Money supply
The total amount available in an economy at a particular time
Keynesianism
The economic theory that government monetary and fiscal policy should stimulate business activity and increase employment in a recession.
The symmetry Boost Decrease Depression Excess Expand Expenditure Recovery Output
Stimulate Reduce Slump Surplus Growth Spending Upturn Production
Opposites Boom Contract Demand Endogenous Save Peak
Depression Expand Supply Exogenous spend Though
