2.5.3 The Trade Cycle

• What are the phases of the trade cycle?

  1. Boom
  2. Downturn
  3. Recession (slump)
  4. Recovery

  
• What characterizes a boom in the trade cycle?

  High national income and positive output gap
• What happens during a downturn in the trade cycle?

  Output and income begin to fall
• How does a recession affect consumption and investment?

  Both consumption and investment tend to fall
• What defines a recession in the UK?

  Real GDP falls for two successive quarters
• What occurs during the recovery phase of the trade cycle?

  National income and output begin to increase