Economic Cycle

Question 1

Recovery/growth

Answer 1

• GDP increases
• Unemployment decreases
• Inflation starts to increase
• Business and consumer confidence increases
• Tax revenue increases because there is more income
• Government spending on welfare benefits will decrease as employment increases

Question 2

Boom/recession

Answer 2

• High GDP
• Low unemployment
• Inflation is high
• Consumer and business confidence is high so increase inflation

Question 3

Recession

Answer 3

• GDP decreases
• Unemployment increases
• Inflation decreases less people spending money
• Consumer business confidence decreases
• Tax revenue decreases and government spending increases so budget worsens - deficit

Question 4

Slump/trough

Answer 4

• GDP low
• Unemployment high
• Inflation low
• Confidence low

Question 5

Output gap

Answer 5

The difference between the trend output and the actual output of an economy

Question 6

Positiv output gap

Answer 6

When the actual output is bigger than the trend output (vertical distance above the trend output by the peak)

Question 7

Negative output gap

Answer 7

The actual output is smaller than the trend output (vertical line below the trend output, by the trough)