Economic Environment: GDP & Trade Cycle

Question 1

Recession definition

Answer 1

A recession is a period of at least six months (or two quarters) during which an economy’s GDP falls.

Question 2

What are the costs of polluting the environment?

Answer 2

External costs of production: noise, congestion, air and water pollution all impose costs on other individuals and groups in society

Question 3

What are the total costs of production?

Answer 3

private or internal costs + external costs

Question 4

What two acts are designed to protect the environment?

Answer 4

The Environmental Protection Act, 1991
- requires businesses to minimise pollution as a whole

The Environment Act, 1995
- coordinating and overseeing environmental protection
- conservation of environment
- control of pollution
- provision for restoring contaminated land and abandoned mines

Question 5

What are strategic and functional decisions affected by?

Answer 5

• GDP
• Taxation
• Fiscal policy
• Monetary policy
• Exchange rates
• Interest rates
• Inflation

Question 6

What are the four stages of a business cycle?

Answer 6

Recovery or upswing
- economic recovery from slump
- employment and production increase
- increased consumer spending
- invest in new non-current assets

Boom
- high levels of production and expenditure by firms
- high government and consumer spending
- invest in non-current assets
- bottlenecks in supply due to high demand

Recession
- output starts to fall and do so continuously for at least 6 months
- increased costs
- falling demand

Slump
- production at lowest, high unemployment
- doesn’t always reach this stage, avoided through monetary and fiscal policies