Chapter 42 Flashcards
(16 cards)
Business cycle?
Fluctuations in economic activity
Depression
Fall in real gdp that lasts years
Output gap?
Gap between actual and potential economic growth
Negative output gap?
When actual output is below potential
Actual economic growth
Increase in gdp
Potential economic growth
Increase in productive capacity of economy
What are the phases of the business cycle?
Upturn
Downturn
Trough
Peak
What happens during peak?
Top point of business cycle.high AD,likely inflation, balance of payments problems
What happens during upturn?
Economy growing at its fastest rate. Consumption grows, incomes rise, higher profit , increased bank lending, increased investment
Wha happens during downturn
Growth rate decreases, negative eco growth. Investment falls. High risk banks go out of buisness
What happens during a trough
Lowest point in trade cycle. Lack of AD. May experience recession or depression
Why do buisness cycles occur?
Fluctuation in AS and AD
Reasons why AD fluctuate
Increase investment
Changes in money supply
Supply side shocks
What policies promote economic growth?
Government will try and increaseAD to reduce negative output gap.
E.g cuts in tax so people spend more and companies expand with their output due to higher consumption
What is inclusive economic growth?
Economic growth that is distributed fairly over society and benefits all
