The Economic Cycle

    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)