Causes of economic growth and the trade cycle 2.5.1 unit 32 Flashcards
What is actual growth?
It is economic growth as measured by recorded changes in real GDP over time.
What is potential growth?
It is economic growth as measured by the changes in the productive potential of the economy over time.
What is economic growth?
It is a rise in output in an economy which can be either either actual growth or potential growth.
What is the trade cycle?
It is regular fluctuations in the level of economic activity around the productive potential of the economy. In business cycles, the economy veers from recession, when it is operating well below its productive potential, to booms when it is likely to be at or even above its potential growth.
What is a depression?
It is a period of the trade cycle when there is a particularly deep and long fall in output.
What causes the trade cycle?
There are two main types of causes:-
- Demand side shocks (a sudden and large impact on aggregate demand.)
- Supply side shocks (a sudden and large impact on aggregate supply.)
What are some example of demand side shocks?
- A housing market bubble may burst.
- The stock market may crash
- The central bank may sharply rise interest rates, to combat steep inflation.
- A sharp rise in government taxes.
- the world economy mat go into recession.
- A sharp rise in the price of the pound.
What are some examples of aggregate side shock?
- A large rise in prices of global commodities.
- An outbreak of trade union militance.
What is hysteresis?
The process where a variable does not return to its former value when changed.In terms of the trade cycle, it is used to describe the phenomenon of an economy failing to return to its former long term trend rate of growth after a sever recession.
