the business cycle (slides two)

Question 1

What are the features if the business cycle?

Answer 1

Boom, contraction, recession and expansion.

Question 2

What is a boom?

Answer 2

A peak period of economic activity.

Question 3

What are features of a boom?

Answer 3

• production spending and employment rise
• higher wages and salaries
• businesses expands, employees are hired
• total spending of consumers increases
• consumer + business confidence high
• high interest rates and sharp inflation rate rise

Question 4

what is a contraction?

Answer 4

A period of economic decline.

Question 5

What are features of a contraction?

Answer 5

• falling levels of production / output
• decrease in consumer spending
• rate of inflation may fall
• wage rates generally fall
• interest rates eventually fall
• level of unemployment rises

Question 6

What is a recession?

Answer 6

Continuously low levels of economic activity, meaning that 2 successive quarters of negative economic growth have occurred.

Question 7

What are features of a recession?

Answer 7

• income and production at their lowest level
• business closures increase
• high unemployment rate
• inflation rate and interest rates low
• wage and salaries fall or grow very slowly
• consumer demand, business sales, and profits reach their lowest rates
• bankruptcies occur often
• reduced borrowing from the finance sector
• businesses have lots of unused resources and no incentive to buy new machinery

Question 8

What causes a recession?

Answer 8

• a lack of spending, signalling to business to cut back on production
• cut backs can cause employees to lose jobs and incomes
• total spending falls further = consumer confidence low

Question 9

What happens if a recession is widespread and continues for a while?

Answer 9

It turns into a depression.

Question 10

Do business cycle fluctuations fall into a regular pattern, and why?

Answer 10

NO, as periods of expansions can last for months to several years, while contractions don’t necessarily result in recessions or depressions IF a recovery begins before it falls too far.

Question 11

What is inflation?

Answer 11

A general increase in the cost of goods and services.

Question 12

How does inflation occur?

Answer 12

• Economic growth is continuously high -> additional spending pushes up prices of products.
• Recessions or depressions cause inflation rates to fall due to a lack of spending.