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A-Level Economics
Macro Economics
The Economic Cycle
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Created by
Stephen Adesina
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Cards (13)
The
Economic Cycle
Recession
: 2
consecutive
quarters
of
negative
economic growth
Depression/Slump
: 8
consecutive
quarters
(
2 years
) of
negative
economic growth
Boom
:
Sustained
growth
Crowding out
is where
business
invest instead of government spending.
What occurs during Growth
Economic growth is
increasing
Unemployment is
decreasing
Government Spending is
increasing
Confidence is
increasing
What occurs during Boom
Economic is
highest
Unemployment
is
lowest
Government
Spending
depends ( Increase due to more
revenue
/ Decrease due to crowding out)
Confidence is
highest
What occurs during Recession
Economic growth is
decreasing
Unemployment is
increasing
Government Spending depends (
Decrease
due to less tax / Increase due higher welfare payments)
Confidence is
decreasing
What occurs during a Slump
Economic growth is
lowest
Unemployment is
highest
Government Spending is
highest
Confidence is
decreasing
Output Gaps
Measures
potential
vs
actual growth
.
Potential output gap is when when actual growth is greater than the
trend rate
of growth.
Negative
output gap is when actual growth is greater than the trend rate of growth.
Positive Output Gap
A positive output gap is when
actual output
is greater than
potential output
.
Shift
AD
outwards to show actual growth
Negative Output Gaps
Shifting
AD
shows
actual growth
rather than
potential growth
Actual output is less than potential
How to solve negative output gaps
Increase
consumption
(
Adv
: Firms=more revenue=better efficiency/
Disadv
: Consumer save less=less consumption in future)
Increase firm
investment
(Adv: Higher efficiency=higher quantity=increase in consumption/ Disadv: Decrease co-operation tax)
Increase
government spending
(Adv: Increase in national happiness=increase in labour=increase in tax/ Disadv: less disposable income from consumers)