The economic cycle pt2

Question 1

Phase 1: Recovery

Answer 1

A recovery occurs when the RNO picks up from the trough reached at the low point of the downturn. Actual output is still less than potential output.

Question 2

Phase 2: Boom

Answer 2

Actual output is now greater than potential output

Question 3

Phase 3: Recession

Answer 3

After the peak (highest point-point between expansion and contraction). Negative growth for 2 quarters as the economy slows down.

Question 4

Phase 4: Depression/Slump

Answer 4

Downturn for a long period of time. Actual output is lower than potential again.

Question 5

AD will be rising leading to…

Answer 5

Increasing economic growth, Rising inflation, Unemployment is falling, consumer spending is rising and consumer/business confidence is rising

Question 6

AD will be falling leading to…

Answer 6

Low economic growth, Falling inflation, Increasing unemployment, falling consumer and business spending and confidence

Question 7

Causes of change in phases of the economic cycle

Answer 7

Fluctuation in AD-Usually caused by changes in consumer and business confidence
Supply-side factors-Often technology changes on the supply side
Bubbles-Rapid market value increases-selling replaces buying, bubble bursts and consumption increases
Seasonal fluctuation-variation in economic activity resulting from seasonal changes