2.5.3: Trade (Business) Cycle

• Trade cycle: Fluctuation of economic activity over time between expansion and contraction
• Boom: A period when rate of growth of real GDP is higher than the long run trend
• Slowdown: Rate of growth of real GDP is weakening, but still rising
• Recession: A period of 6 months or more when an economy suffers a fall in real GDP
• Depression: A recession where real GDP has fallen by at least 10%
• Recovery: A phase after recession when real GDP begins to increase
• Cause of economic slowdown: Tightening of fiscal policy
• Cause of economic slowdown: Increase in interest rates
• Cause of economic slowdown: Slowdown in global economic growth
• Cause of economic slowdown: Shock in the economy
• Characteristic of a recession: Fall in real GDP
• Characteristic of a recession: Increase in unemployment
• Characteristic of a recession: Disinflation
• Economic shock: Unexpected event that leads to a sudden and significant effect on indicators like inflation, unemployment and economic growth
• Demand side shock: A sudden change in AD
• Supply side shock: A sudden change in AS
• Positive shock: A shock that boosts the economy
• Negative shock: A shock that causes a recession or increase in unemployment or inflation
• External shock: Shock coming from global events
• Internal shock: Shock coming from within an economy
• Shocks can be worsened by the multiplier effect