The economic cycle (CH 17)

Question 1

What does the economic cycle refer to?

Answer 1

The stages of economic growth the economy is in, where the economy goes through periods of busts and booms

Question 2

What happens to real output when there is economic growth?

Answer 2

There is an increase in real output

Question 3

What happens in the boom stage?

Answer 3

When economic growth is fast, could be inflationary or unsustainable

Question 4

What happens in the recession stage?

Answer 4

Government might increase spending to try and stimulate the economy. Spend on lost jobs or cutting taxes

Question 5

What may the government receive during periods of economic growth?

Answer 5

Government may receive more tax revenue since consumers will spend more and earn more

Question 6

Boom characteristics

Answer 6

• Demand rise
• High rates of economic growth
• Near full capacity
• Low unemployment
• Rising inflation
• Government budget improves
• Consumer/Firm have confidence= high rate of investments

Question 7

Recession characterisics

Answer 7

• GDP falls
• Negative economic growth
• Spare capacity and negative output gaps
• Rising unemployment
• Low inflation rates
• Consumer/Firm less confidence= Less investment and spending
• Government budget worsens as more welfare spending and less tax revenues