Trade cycle 2.5.3

Question 1

Characteristics of a BOOM

Answer 1

when the economy is at its peak, national income is higher and the economy is likely to be working above the PPF, where there is a positive output gap. There would be high unemployment, high living standard and high investments.

However there would be inflationary pressure.

Question 2

Characteristics of a RECESSION

Answer 2

there tends to be high unemployment causing low consumption, investments and imports. there would be a lack of investments
there would be a fixes exchange rate or too high exchange rate
however the inflationary pressure will be low