Econmoic growth/cycle

• define an economic shock

  an unexpected event that has a large effect on AD or AS therefore effecting economic performance
• what are the 2 types of economic shock

  demand side

  supply side
• what are some examples of economic shocks

  -ukraine war - supply side affected commodity price

  -covid - supply stopped and demand fell

  -brexit - AD fell due to a lack of investment in british firms

  2009 financial crisis - less AD as disposable incomes fall
• what are the factors that can lead to change bweteen the economic cycle

  -shocks

  -unsustainable growth - uncontrollable inflation leads to recession

  -foreign inflation rates -if the EU or USA has aression it is likely the UK will too
• what is the difference between nominal and real GDP

  nominal figure are the actual figures but real figure take into account inflation
• what are the benefits to economic growth

  -more money circulating so higher living standards

  -unemployment likely to fall as real output rises

  -improves government budget position due to increase in tax revenue

  -if there is no economic growth consumer and business confidence falls

  -needs to grow with population for GDP per capita to stay stable
• what are the costs to economic growth

  -if growth is unsustainable inflation may be uncontrollable

  -growth worsens the balance of payments as people buy more imported goods

  -can harm the environment
• define the economic cycle

  the changes in economic growth over time
• what are the 4 stages of the economic cycle

  1)boom

  2) recession

  3) depression

  4) recovery
• what is a boom

  significantly high levels of economic growth
• what is a recession


  two consecutive quarters of negative economic growth
• what is a depression


  very large falls in economic growth
• what is a recovery

  a return to positive growth after a period of recession or depression
• define trend growth 


  average rate of growth the economy can maintain in the long term
• what is true below trend growth

  deflationary gap or a negative output gap (not necessarily deflation)
• what is true above trend growth

  inflationary gap or a positive output gap (normally inflation)
• what is the aim with the cycle

  to be as close to trend growth as possible at all times
• features of a recession Boom

  • Economic growth- Higher
  • Unemployment- Lower
  • Inflation- Higher
  • Government Budget Position- Higher
  • Balance of payments- worsens
  • interest rates- higher
• features of a Recession

  • Economic growth- Lower
  • Unemployment- Higher
  • Inflation- Lower
  • government budget position- Worsens
  • Balance of payments- Lower
  • interest rates- lower
• what happens to spending in a recession 


  Consumer spending is lower during recessions
• what happens to spending in a boom

  it increases