Theme 2.5 - Economic growth

Question 1

2.5.3 - What is the trade (business) cycle?

Answer 1

• the periodic but irregular up and down movements in economic activity measured by fluctuations in real GDP and other variables
• tend to have four main phases: boom, downturn, recession and recovery

Question 2

2.5.3 - What are the characteristics of a boom?

Answer 2

• National income is high
• Economy likely working above PPF
• Positive output gap
• C and I are high so are tax revenues
• Wages increasing
• Increase in imports to meet demand
• Inflationary pressures

Question 3

2.5.3 - What is a recession?

Answer 3

Where real GDP falls at least for two successive quarters

Question 4

2.5.3 - What are the characteristics of a recession?

Answer 4

• High unemployment
• Low consumption, investment and imports
• Inflationary pressure low
• May been be deflation

Question 5

2.5.3 - What happens during a downturn in the trade cycle?

Answer 5

during a downturn the economy begins to move from a boom to a recession
as a economy moves out of a recession it moves into recovery