CHAPTER 32 CAUSES OF ECONOMIC GROWTH AND THE TRADE CYCLE Flashcards
Actual growth
economic growth as measured by recorded changes in real GDP over time
Boom or peak
Period of time when the economy is growing strongly and operating above its productive potential
Demand- side shock
A sudden and large impact on aggregate demand
Depression or slump
A period of the trade cycle when there is a partially deep and long fall in output
Downturn
A period of the trade cycle when either economic growth or GDP itself is falling
Economic growth
A rise in output in an economy which can either be actual growth or potential growth
Economic recovery
The movement back from where th economy is operating below its productive potential to a point where it is at its productive potential
Export-led growth
A rise in aggregate demand caused by a rise in exports
Hysteresis
The process whereby a variable does not return to its former value when changed. In terms of the trade cycle, it is used to describe the phenomenon of an economy failing to return to its former long term trend rate of growth after a severe recession
Potential growth
Economic growth as measured by the changes in the productive potential over time
Output gaps
The difference between the actual level of GDP and the productive potential of the economy. There is a positive output gap when actual GDP is above the productive potential of the economy and it is in boom. There is a negative output gap when actual GDP is below the productive potential of the economy.
Recession
A period of the trade cycle when output or growth in output falls . The technical definition now used by the UK government is that if a recession occurs when growth in output is negative for two successful quarters (i.e. two periods of three months)
Spare capacity
For a whole economy, this exits when long run aggregate supply is greater than aggregate demand and so there is a negative output gap.
Supply-side shock
A sudden and large impact or aggregate supply
Trade or business
Regular fluctuations in the level of economic activity around the productive potential of the economy. In business cycles, the economy veers from recession, when it is operating well below its productive potential, to booms when it is likely to be at or even is above its productive potential.
