Economic cycle

• What is the macro objective for growth?

  For growth to be strong, sustained, and sustainable.
• How is real GDP represented in a diagram for growth?

  Real GDP is on the y-axis, while time is on the x-axis.
• What does the smooth upward sloping line in the growth diagram represent?

  It represents strong and sustained economic growth.
• How does actual growth differ from trend growth?

  Actual growth fluctuates while trend growth is smooth and consistent.
• What are the two synonymous terms for trend growth?

  Trend growth and potential growth.
• What does the economic cycle represent?

  Fluctuations in GDP over time.
• What are the four different phases of the economic cycle?

  Boom, slowdown, recession, and recovery.
• What is defined as a recession in economic terms?

  Two successive quarters of negative growth.
• What is the lowest point of the actual growth line called?

  The trough.
• What happens during an economic recovery?

  Things start to get better in the economy.
• What characterizes a boom in the economic cycle?

  Growth is rampant and actual growth is beyond potential growth.
• What is likely to happen to unemployment during a boom?

  Unemployment is likely to be very low.
• How does consumer confidence behave during a boom?

  Consumer confidence and business confidence will be high.
• What is a likely effect of a boom on government tax revenues?

  Higher tax revenues from income tax, corporation tax, VAT, and tariffs.
• What is a potential side effect of a boom?

  Demand-pull inflation may occur.
• What happens to actual growth during a recession?

  Actual growth is lower than potential growth, indicating a negative output gap.
• What is the impact of a recession on unemployment?

  Unemployment is likely to be higher as firms reduce their workforce.
• How does consumer confidence change during a recession?

  There is a sharp fall in consumer confidence and business confidence.
• What happens to construction and manufacturing during a recession?

  There is less construction and manufacturing activity taking place.
• What is a common response of firms during a recession to maintain profit margins?

  Firms may destock and reduce production.
• What is the expected inflation trend during a recession?

  Lower demand leads to lower demand-pull inflation.
• What macroeconomic policies might be implemented during a recession?

  Loose macro policies like lower interest rates and higher government spending.
• What are the indicators of economic recovery?

  Increased consumer confidence and willingness to spend on expensive items.
• What does increased business confidence during recovery indicate?

  More investment and expansion by businesses.
• What is a sign of recovery in the construction sector?

  Increased construction activity from both investment and consumer spending.
• What causes fluctuations in actual growth?

  Shocks that are unforeseen and unpredictable.
• What are demand-side shocks?

  Factors that reduce aggregate demand unexpectedly.
• What is an example of a demand-side shock?

  A sudden increase in interest rates.
• What can a sudden cut in government spending lead to?

  A recession.
• How can a sudden strengthening of the exchange rate affect the economy?

  It can lead to less net exports.
• What is a potential consequence of a housing market crash?

  It can massively affect consumption.
• What can a banking sector crisis lead to?

  Less consumption and investment.
• How can higher taxation rates affect the economy?

  They can shock the economy into a recession.
• What are supply-side shocks?

  Unforeseen events that affect aggregate supply.
• What is an example of a supply-side shock?

  A natural disaster that disrupts production.
• How can an increase in raw material prices affect the economy?

  It can shift aggregate supply left and lead to recession.
• What can a sudden weakening of the exchange rate cause?

  It can make imports of raw materials more expensive.
• What is the key reason for fluctuations in GDP?

  Unforeseen shocks that cannot be predicted.
• What does the economic cycle explain?

  Why we get fluctuations in GDP and the business cycle.
• What will be discussed in the next video?

  The costs and benefits of growth.