The Trade Cycle

Question 1

What is the trade cycle?

Answer 1

The fluctuations in actual growth over time in an economy.

Question 2

What is a boom?

Answer 2

When national income is high and the economy is operating above it’s productive potential.

Question 3

What are the characteristics of a boom (7)?

Answer 3

1) Full employment.
2) Rising imports.
3) High inflationary pressure (demand-pull inflation).
4) Rising wage rates.
5) High tax revenues.
6) High consumption.
7) High investment.

Question 4

What is a recession?

Answer 4

Negative economic growth over two consecutive quarters.

Question 5

What are the characteristics of a recession (9)?

Answer 5

1) High unemployment.
2) Low consumption.
3) Low investment.
4) A fall in imports.
5) Low inflation/deflation.
6) A rise in welfare benefits.
7) Low tax revenues.
8) Low business profits.
9) Business failures and closures.

Question 6

What are the features of a downturn (7)?

Answer 6

1) A fall in AD.
2) A fall in consumption.
3) A fall in investment.
4) Fall in tax revenues.
5) An ease in inflationary pressures.
6) A fall in the demand for imports.
7) A rise in unemployment.

Question 7

What are the features of a recovery (7)?

Answer 7

1) A rise in AD.
2) A rise in consumption.
3) A rise in investment.
4) A rise in tax revenues.
5) An increase in inflationary pressures.
6) A rise in the demand for imports.
7) A fall in unemployment.

Question 8

What are the factors that could lead to a recession (6)?

Answer 8

1) Housing market failure.
2) High interest rates.
3) A sharp rise in taxation.
4) A world economic recession.
5) Sharp appreciation of the pound.
6) A stock market crash.