The Business Cycle

Question 1

what defines a boom

Answer 1

when econ activity and growth are higher than ave

Question 2

what are 3 characteristics of a ‘boom’

Answer 2

1. aggregate expenditure is greater than level required for full employment
2. high consumption of durables and luxuries
3. high borrowing (interest rates increase due to demand)

Question 3

what are 4 charactersitics of a contraction

Answer 3

1. droughts/floods disrupt production
2. gov policies restrain high econ growth
3. rising interest rates discourage borrowing
4. consumer spending on durables goods decrease

Question 4

what defines a trough

Answer 4

when aggregate expenditure is less than economys potential

Question 5

what are 4 characteristics of a trough

Answer 5

1. high cyclical UE
2. low interest rate (tries to increase spending)
3. high reluctance to spend/saving

Question 6

what are 3 characteristics of an expansion

Answer 6

1. capital weares out and requires replacement = investment
2. businesses innovate to gain competitiveness
3. investment spending: takes time to construct new machinery so expansion is slow