AS Economics: The economic cycle

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  • Created on: 20-03-13 23:04
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The economic cycle is the tendency of national or global economic activity to fluctuate between boom, recession, slump
and recovery.
Boom a time of rapid economic growth, typically linked with:
Increased consumer spending as people feel confident and are more likely to borrow money to finance more spending.
Low unemployment.
Increased investments as businesses seek to expand.
Upward pressure on prices as demand increases, which leads to inflation.
Recession is the phase of the economic cycle in which GDP is falling (strictly for two or more successive quarters), typically linked with:
Firms decrease production or reduce stock.
Increased unemployment.
Decreased inflation
Decreased investment as there is less confidence about future prospects.
Consumers will cut back on spending.
Slump when GDP growth is low or negative, typically linked with:
High levels of unemployment.
Low levels of investment.
Reduced spending by consumers especially on consumer durables.
Inflation is low.
High levels of spare capacity.

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Recovery when economic growth will start to rise towards the average level again, typically linked with:
Consumer confidence grows ­ increased borrowing and spending.
Firms increase output and investments occur.
Unemployment will decrease.
Inflation will stop falling.
Leading indicators are early signals of the direction of economic activity e.g. business/consumer confidence, share prices, construction
and new investment/manufacturing orders.
Lagging indicators are measures which are slow to reflect the current state of economic activity e.g. unemployment and wages.…read more


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