The Business cycle Flashcards
What is the business cycle?
the cyclical structure of the general level of economic activity.
define these words.
boom, peak, recession, depression, trough, expansion
A recession is a relatively minor reduction is the level of economic activity
a depression is a severe reduction in the level of economic activity. A major version of a recession.
boom- expansion and peak of the business cycle.
peak is the top of the business cycle
trough- opposite of the peak
What is inflation?
Inflation is the general rise in prices over all sectors of the economy.
draw a graph on economic growth
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Explain Macro Economics
the study of economics as a whole and how it fluctuates and expands over time. Looks at the national and international economy rather then the individual behaviour of a consumer or a firm
Explain Micro Economics
The study of the decisions of individual households and firms. Individual industries and prices of individual goods and services.
What are the phases of the business cycle during a contraction?
Falling levels of production
decreasing consumer spending
rate of inflation may fall
wage rates generally fall
Interest rates generally fall
level of unemployment rises
When the economy expands
Production increases
Unemployment decreases- employment increases
Wages increase
consumer spending increases
When the economy contracts
Production decreases
Unemployment increases
wages decrease
consumer spending decreases
What happens in a recession?
A recession is due to too little spending meaning income and production are at their lowest
wages and salaries either fall or grow much slower
consumer demand and business sales reach lowest levels
businesses have more unused recources
interest rate and inflation rate stays low
What happens in a boom?
Income and production are at their highest
full employment of labour
wages and salaries high
increase supply and demand
interest rates are high
inflation rate high
How does the reserve bank regulate the business cycle
If the economy is expanding too quickly the reserve bank may increase interest rates to slow down the economy by encouraging people and businesses to spend less.
Higher interest rates on deposits and loans provide an incentive for people to save their money, rather then spending it or borrow more.
If the economy is contracting the reserve bank decrease interest rates to speed up the economy by encouraging people to spend more.
Lower interest rates on deposits and loans provide an incentive for people to spend or borrow money, rather than save it.
How does the government regulate the business cycle?
act as a regulator of the level of economic activity
a controller of our commercial lives
an influence on the distribution of income
a producer of goods and services.
