The Economic Cycle Flashcards
Positive output gap
Economy producing more goods and services than trend outpit
If well above, experiencing boom and inflation increasses
Boom
Period of strong growth
Recovery
Economic growth after a recession
Negative output gap
Economy produces less gdp than trend output
Economy may be slowing down or recession or slump
Recession
Negative economic growth for 2 consecutive quaters
Slump
Prologed period of recession
Fiscal gov policies
Tax and gov spending
Monetary gov policies
Interest rates and money supply
What cauuses a recession
Fall in ad (all other things being equal) is likely to cause a recession
-lower ad, economy settles at lower level of gdp and lower price level
Impact of recession on gdp
-lower consumer confidence- spend less esp on non-essential goods, luxury goods eg. Cars and holidays
-loss of jobs
-pay cuts
—demand for inferior gods increases- goods we buy more of when incomes fall (Aldi food, primark clothes)
Impact of recession on unemployment
Cyclical unemployment increases
As firms cut jobs or close down
Impact of recession on gov finances
-revenues decrease
Less vat- less spending
Less coperation tax- less profits
Less income tax- as unemployment increases
-spenidng increases
Ui- unempllyment increases
May result in increased gov borrowing- cushion the impact of recession
Impact of recession on equity
Unemployment increases- waste of human resources
Gov spending on welfare not education- which helps for more equitable society
Exaccerbated by rich profiting from recession- buying cheap houses
Impact of recession on inflation
-demand-pull inflation should fall
-risk of deflation
Impact of recession on current account on the balance of payments
-deficit decreased- more balances
-consumers less money to spend on foreign imports
