Macroeconomics - L13 The Business Cycle Flashcards
What is the nature of the business cycle?
It is cyclical.
What are the 4 stages of the business cycle?
Peak
Trough
Expansion
Contraction
Describe the nature of a ‘Peak’ phase of the business cycle.
Economic growth = strong (perhaps unsustainable)
Inflation = High
Unemployment = Low
Spending and confidence = high
List 4 causes of a peak in the business cycle
High consumer confidence
High business confidence
Low Household savings ratio
High levels of global economic growth
Describe the nature of the ‘Contraction’ phase of the business cycle.
Economic growth = slowing
Inflation = lower levels of inflation / disinflation
Unemployment = increasing
Describe the causes of a contraction in the business cycle.
High inflation
Capacity constraints Higher interest rates
Due to the above, the market will correct itself, meaning that consumers will increase their savings to decrease their debt.
Describe the nature of the ‘Trough’ phase of the business cycle.
Low levels of production (GDP / Economic growth) High unemployment
Disinflation / deflation
Describe the causes of a trough in the business cycle.
Reduced levels of consumer spending due to low consumer confidence.
Higher levels of household savings due to low consumer confidence.
Reduced levels of investment due to low business confidence.
Low levels of disposable income due to low production levels and high levels of unemployment.
Describe the nature of an ‘Expansion’ in the business cycle.
Increasing levels of production (GDP growth).
Falling unemployment.
Inflationary pressures building in the economy.
Describe the causes of an expansion in the business cycle.
Increasing consumer sentiment (confidence).
Increased consumption.
Increasing business confidence.
Increased investment.
Increased government spending through budgetary policy.
