Th2.5: The Trade Cycle

Question 1

What is the trade cycle?

Answer 1

the periodic but irregular up and down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables

Question 2

Each business cycle is different but tends to have four main phases, these being…

Answer 2

boom
downturn
recession (slump)
recovery

Question 3

What are the two main types of trade cycle?

Answer 3

mild trade cycle - where GDP does not fall during recessions but instead doesn’t grow by as much as the trend
a more extreme one as seen in Graph 8

Question 4

Why does the cycle exist?

Answer 4

due to demand and supply side shocks

Question 5

What do demand side shocks include?

Answer 5

collapse of a housing bubble, political issues, changes in exchange rates or a recession in the world economy

Question 6

What do supply side shocks include?

Answer 6

trade union action, a change in oil prices or a change in the exchange rate

Question 7

Shocks can be …. so can cause ….

Answer 7

negative or positive so could cause a boom or recession