The Business Cycle Flashcards
Distinguish between the terms ‘macroeconomics’ and ‘microeconomics’
Macroeconomics is defined as the study of the performance of the economy as a wholes and the policies used to improve that performance
Microeconomics studies the behaviour of individual economic agents (households and firms) and sectors of the economy
Describe the phases of the business cycle
A boom occurs when the level of economic activity and rate of growth is higher than ‘average’ and the level of aggregate expenditure is at or beyond the level required for full employment of productive resources
A contraction is when growth stops and the economy moves from expansion to a more settled level of production
A trough is a period of economic malaise in which the level of expenditure is below the economy’s potential
An expansion occurs when machinery requires replacement, innovation occurs and policies shift
Explain what leading, lagging and coincident indicators are and give examples
Leading indicators reflect the expectations of households and firms such as confidence
Lagging indicators are not expected to show change until after trends in the rest of the economy have been confirmed such as the unemployment rate
Coincident indicators move I line with the level of economic activity such as retail sales
Why do economists collect the data called economic indicators?
Many organisations such as business advisory firms collect economic data to provide advice to their clients
List three events that may act as exogenous causes of a contraction
Drought, flood, pandemic
Briefly outline the impact of COVID on employment and economic growth
2/3 businesses reported lower demand
1/3 experienced cash flow issues or changed practices
1/3 reduced staff
Unemployment rose to 7.4%
GDP declined by 7%, the economy went into recession
Why is the COVID recession associated with both falls in aggregate demand and aggregate supply?
The recession was caused by an external shock. The pandemic caused both a fall in productive capacity (aggregate supply) and a fall in people’s ability or willingness to buy (aggregate demand)
