Causes of Economic Growth and the Trade Cycle

Question 1

The Business Cycle

Answer 1

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Peak/Boom - When the economy is at a peak or is in a boom, national income will be high. Consumption and investment will be very high. Wages will be high and profits increasing. High tax revenues, low unemployment. Also high inflationary pressures in the economy.

Contraction - When the economy moves into a downturn, decreasing consumption and investment, tax revenues begin to fall, unemployment increases. Imports decline and inflationary pressure eases.

Trough/Recession - Economic activity is at a low in comparison to surrounding years. High unemployment exists, so consumption, investment and imports will be low. There will be few inflationary pressures in the economy so prices start to decrease (ie there will be deflation)

Recovery/Expansion - As the economy moves into a recovery phase, national income and output begin to increase, unemployment falls, consumption, investment and imports being to increase, Workers feel more confident about demanding wage increases and inflationary pressures begin to mount.