5.3 Trade (Business) Cycle

Question 1

Causes of recession?

Answer 1

• External shocks
• Tightening monetary/ fiscal policy
• Drop in confidence

Question 2

What is recession?

Answer 2

Two consecutive quarters of negative economic growth

Question 3

Short-term effects of recession?

Answer 3

• Low profit + investment
• High unemployment
• Low govt finance
• Deflation

Question 4

Long-term effects of recession?

Answer 4

• Rising structural unemployment
• Lower living standards
• Widening inequality

Question 5

Competing views on recession?

Answer 5

1) Hysteresis
- Recession could lead to permanent loss of national output
2) Creative Destruction
- Recession can see emergence of innovation

Question 6

What is a depression?

Answer 6

Persistent and severe downturn in output and jobs - GDP falls by at least 10%

Question 7

Stages of economic cycle?

Answer 7

1) Boom
2) Slowdown
3) Recession
4) Depression
5) Trough
6) Recovery