Economic Growth 2 Flashcards
What is the economic cycle?
Fluctuations of growth within economic cycle.
What is a boom?
When the economy is growing quickly.
What occurs in a boom?
- Economy is growing quickly,
- AD will be rising
- leading to a fall in unemployment
- Rise in inflation
What is a recession?
Negative economic growth for at least two consecutive quarters.
• AD will be falling
• Unemployment rising
• Fall in price levels
What occurs during a recovery?
The economy begins to grow again, going from negative economic growth to positive economic growth
• AD will be rising
• Unemployment will be falling
• Inflation will be rising
What is a negative output gap?
Difference between the level of actual output and trend output when actual output is below trend output.
When does a negative output gap occur?
Will occur during a recession when the economy is under performing, as some resources will be unused, or underused, so unemployment might be high
How does a negative output gap affect inflation?
Negative output gap puts downwards pressure on inflation
What is a positive output gap?
Difference between the level of actual output and trend output when actual output is above trend output.
When does a positive output gap occur?
During a boom when the economy is overheating, as some resources are being fully used/overused, so unemployment may be low
What effect does a positive output gap have?
A positive output gap will have downwards pressure on inflation.
What happens during the recovery stage?
An economy will go from having a negative output gap to having a positive output gap as the actual output rises above trend output.
What does being inside the PPF mean?
Some resources are not being fully used, negative output gap
What does being on the PPF mean?
Economy operating at full capacity.
