Topic 1: Introduction to Economics Flashcards
What happens in an economic downturn (business cycle)
Recession- Firms postpone plans for new investments, reduce production and reduce demand for labour, resulting in employment fall and many people becoming unemployed
What are the effects of unemployment
Families forced to rely on their savings and social security payments to meet expenses while their normal sources of income are used up,
reduce their consumption, further contracting the economy, and many more people would be put out of work, more people will fall below the poverty line
As living standards fall, health problems come, educational opportunities may be disrupted and social problems like crime and suicide can increase together these effects result in a lower quality of life
What are the features of the business cycle (DRAW)
Features: Peak, Trough, Recession, Boom, Expansion,
Depression/contraction, Recovery, Real GDP, Time
Why does the gov. intervene in the business cycle. Give example
Because a prolonged economic downturn in biz cycle, can lead to negative effects, the government aims to smooth it out as one of its main economic goals.
They step in to stimulate economic growth during periods of recession to restore the economy to growth and improve employment opportunities. In the long term government attempt to ensure the economy can sustain economic growth for a longer people of time to avoid any major economic downturn.
Example: COVID - government intervened by implementing travel restrictions from going in and out of the country, closing borders, and lockdowns, dramatically curbed economic activity, unemployment losing 1 million jobs, but in 2022 the unemployment rate returned to pre-pandemic level, due to the successful government policies.
What are the impacts of an economic upturn (business cycle)
Boom- It’s associated with increased investment and production. This increases demand for labour and leads to falling unemployment levels. It tends to increase the disposable income available to most consumers, leading to further expansion of the economy as consumption levels rise. Improvement in quality of life occurs and poverty levels fall
Impacts of the Business Cycle
Downturn: Recession
- Unemployment rises
- Poor quality of life
- Decrease in savings
- Demand for labour decreases
- Decreased income levels
- Falling production of G&S
- Decrease levels of consumption and investments
Upturn: Boom
- Increase in disposable income
- Increase in demand for labour
- Consumption and investment increases
- Better quality of life
- Unemployment declines
- Increase in production of G&S
