Economic Growth and Cycle Flashcards

1
Q

What are the 4 phases of economic cycle?

A
  • boom/expansion
  • slowdown
  • recession
  • recovery
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2
Q

what is a boom/expansion?

A

when the level of real output becomes greater than the trend level of output. ends when upswing of economic cycle gives way to next downswing

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3
Q

what is slowdown?

A

occurs when rate of growth decelerates but national output is still rising

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4
Q

what is recession?

A

when real national output is falling for 6 months or more. a severe recession lasting 2 years or more is called a depression

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5
Q

what is recovery?

A

occurs when real GDP begins to grow after the end of a recession, or at the end of the trough of the economy cycle

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6
Q

what does economic boom mean overall? lcr

A

-fast growth of consumption
-due to rising real incomes, strong confidence, surge
in house prices
-pick up in demand for capital goods due to investing in extra capacity
-more jobs created, falling unemployment, higher real wages
-high demand for imports therefore run a larger trade deficit
-government tax revenues will rise
-increase in inflationary pressures (demand might outstretch supply) if economy overheats and has a positive output gap

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7
Q

what does economic recovery mean overall? lcr

A
  • rising aggregate demand leads to increase in real national output and fall in amount of spare capacity
  • rise in government borrowing
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8
Q

what does economic recession mean overall? lcr

A
  • falling demand
  • rising unemployment
  • some firms go out of business
  • low confidence in the economy and most firms will reduce investment
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9
Q

possible causes of a recession:

A
  • external events
  • tightening of macro policy
  • fall in asset prices or supply of credit
  • drop in business and consumer confidence
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10
Q

short term economic effects of a recession:

A
  • business profits and capital investment
  • unemployment
  • government finances
  • deflation
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11
Q

long term economic and social effects of a recession:

A

economic:
- rising structural long-term unemployment and regional decline
- low rates of investment can reduce the size of the capital stock
- persistent budget (fiscal) deficits and a rising national debt leads to austerity

social:

  • falling real wages
  • widening inequality of income and wealth leading to rising poverty
  • social costs like loss of social cohesion and threats to democracy
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12
Q

causes of economic cycle:

A
  • fluctuations in aggregate demand
  • supply-side factors i.e. changes in technology
  • speculative bubbles i.e. rapid economic growth leads to a rapid rise and speculative bubble in asset prices
  • political business cycle theory i.e. party may buy votes
  • outside shocks: demand and/or supply side shocks
  • climatic cycles
  • multiplier/accelerator interaction
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13
Q

what is short-run economic growth?

A

the actual annual percentage change in real national output

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14
Q

causes of short-run economic growth:

A
  • changes in aggregate demand
  • changes in short-run aggregate supply
  • short-term policy changes
  • short-term demand and supply side shocks
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15
Q

what are the impacts of shocks on economic growth:

A
  • demand-side shocks refer to unexpected changes in the economy that directly impact on aggregate demand
  • supply-side shocks refer to unexpected changes in the economy that directly impact on aggregate supply
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16
Q

benefits of economic growth:

A
  • higher living standards
  • employment effects
  • fiscal dividend
  • accelerator effect