the economic cycle

Question 1

graph of business cycle/economic cycle

Answer 1

-RGDP on y-axis, time on x-axis
-trend growth/potential: straight line
-squiggly:actual growth
-below line: negative output gap
-above line:positive output gap
-4 stages: at the bottom-slump, going up:recovery, top:boom, going down:recession

Question 2

definition of a recession

Answer 2

-two consecutive periods of negative economic growth

Question 3

different characteristics in economic cycle

Answer 3

-boom: actual>trend, high profits, low unemployment, high business and consumer confidence, high demand for imports, increased tax rev, inflation
-recession/trough: declining AD, high unemployment, sharp falls in confidence/investment, firms restocking, fall in house prices, lower inflation, lower d for imports
recovery: rising confidence, higher house prices, rising investment, increase in construction, loose policy.

Question 4

shocks

Answer 4

-demand-side: shocks to AD
sudden rise in IR, sudden cut in gov spending, sudden strength ER, sudden housing market crash, tax

-supply-side:
LRAS: wars, natural disasters
SRAS: raw materials, wages, taxes, weakening ER