Theme 2 - The economic cycle - Flashcards in A Level and IB Economics

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Created by: becky.65
Created on: 21-05-17 10:38

What is the economic cycle?

It describes the fluctuations in the levels are rates of growth of GDP over a period of time

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What is the normal economic cycle?

Boom, downturn, recession, recovery

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What does the 'long term trend' show?

How over time even if the economy fluctuates, there is an average increase of GDP over time

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What is GDP growth based on?

Higher productivity from increased investment, new technologies and education improves and new sources of natural resources

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What is a 'boom' period?

Rapid growth and expansion of the economy

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What is a downturn?

The boom slows and the rate of growth decreases

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What is a recession?

There are at least two consecutive quarters of negative growth

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What is a recovery?

Positive growth returns, slowly at first then picking up pace

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What are the characteristics of a boom?

The GDP increases as does aggregate demand, firms increase output, unemployment falls so people have more disposable income which reinforces demand, new businesses set up and existing ones expand, inflation is likely to increase

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When will a downturn begin?

When monetary policy is introduced to reduce inflation and reduce spending

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What are the characteristics of recession?

Falling sales and profits, output falls, unemployment rises, lots of competition for the jobs so employers don't have to offer pay rises, real wages fall, people have less disposable income so aggregate demand falls, inflation is no longer a problem

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How are businesses affected by the boom period?

Sales of elastic and normal goods will increase, output will rise, investment will be increased, unemployment is low so consumers have more disposable income so profits will rise, businesses will start-up, sales of inferior gods will fall, prices may

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How are businesses affected by a recession period?

Sales of income elastic goods will fall, profits for companies will decrease as unemployment rises and people have less disposable income, sales of inferior goods will increase, prices will fall as supply exceeds demand

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Other cards in this set

Card 2

Front

What is the normal economic cycle?

Back

Boom, downturn, recession, recovery

Card 3

Front

What does the 'long term trend' show?

Back

Card 4

Front

What is GDP growth based on?

Back

Card 5

Front

What is a 'boom' period?

Back

View more cards

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Theme 2 - The economic cycle