Lesson 24 - Trade Cycle + Economic Growth Flashcards
When does a boom occur?
Real national output rises at rate faster than the trend
Leads to positive output gap
When does a slowdown occur?
Rate of growth decelerates but national output still rises
When does a recession occur?
Fall in real national output + period of negative growth
Negative output gap
When does a recovery occur?
R.GDP picks up from lowest point of recession
Output gap shrinks
Which 5 factors cause the Trade Cycle?
Momentum Effect
IR Changes
Technology
Political Business Cycle
World Economy
How does the momentum effect affect the trade cycle?
Positive growth leads to increased consumption, investment, asset prices etc.
How do IR changes affect the trade cycle?
Higher rates, more saving, less consumption, economic downturn
How does technology affect the trade cycle?
Improvements boost growth
Innovation stagnates - growth slows/reduces
How does the political business cycle affect the trade cycle?
Policies implemented in order to create boom prior to an election
How does the world economy affect the trade cycle?
Foreign recessions impact export prices, earnings + investment
What are the benefits of economic growth?
Higher living standard
Employment effects
Fiscal dividend
Accelerator effect
In what way are higher living standards a benefit of economic growth?
Real GNI rises
Lift people out of poverty + improves development outcomes
In what way are employment effects a benefit of economic growth?
Sustained growth stimulates jobs
Contributes to lower unemployment + reduced inequality
In what way is fiscal dividend a benefit of economic growth?
Raises tax revenue
Reduces govt spending on unemployment related welfare benefits
In what way is the accelerator effect a benefit of economic growth?
Growth stimulates new investment + cons. spending
Higher growth may attract FDI projects
