GDP and the business cycle chap18 Flashcards
What is the definition of the economy?
the collective behaviour of different groups such as businesses, employees, consumers and the government.
What is meant by ‘economic activity’?
the level of output in all sectors of the economy (primary, secondary, tertiary)
What does GDP stand for and what does it mean?
gross domestic product - it means the total value of all of the economy’s output.
What is a circular flow of income?
the continuous flow of income from businesses to households as payment for work, and from households to businesses as a payment for goods/services.
What are ‘injections’?
income coming into the UK economy that does not come from UK households e.g investment
What are ‘leakages’?
income that ‘leaks away’ from the economy and does not get passed back to UK businesses e.g taxes, savings
What are the 4 stages of a business cycle?
- boom
- recession
- slump
- recovery
What is happening in a ‘boom’?
- high level of employment and consumption
- high demand for products
- businesses are profitable
What is happening in a recession?
- sales are falling
- consumer demand in some sectors will be low
- could lead to redundancies
- increased unemployment rates
What is happening in a ‘slump’?
- similar to recession but worse
- almost all of the economy is affected
What is happening in recovery?
- economic activity rises
- demand increases
- businesses will take on more employees
How could the government benefit from a rise in GDP?
the government would be able to collect more taxes because people may have a higher income meaning they will spend more. This means people would pay more income tax and VAT.
