Th2.5: Characteristics of a Boom

Question 1

When an economy is at its peak (boom) what is the national income and economy like?

Answer 1

national income is high

economy is likely to be working above PPF where there is a positive output gap

Question 2

What is consumption and investment like during a boom?

Answer 2

high as are tax revenues, and wages will be increasing

Question 3

There will also be…

Answer 3

inflationary pressure

Question 4

Usually, the country will increase… to…

Answer 4

imports to meet the demand of high-income consumers that cannot be met by the goods produced within the country

Question 5

What happens to the economy during a downtown?

Answer 5

the economy begins to move from a boom to a recession, output and income fall which leads to a fall in consumption and investment as well as tax revenues

Question 6

Why during downtowns do people begin to accept lower wages?

Answer 6

due to higher levels of unemployment

Question 7

What does a downtown cause?

Answer 7

inflationary pressure to ease and a fall in the number of imports