The economic cycle

Question 1

The economic cycle

Answer 1

Cyclical pattern of short term fluctuations in GDP, mainly caused by changed in AD and supply shocks

Question 2

Trend growth rate

Answer 2

Long run average increase in GDP. Potential growth

Question 3

Output gaps

Answer 3

Recessionary and Inflationary gaps

Question 4

Recessionary gap

Answer 4

Negative gap that occurs during a depression-economy is underperforming and some resources underused

Question 5

Inflationary gap

Answer 5

Positive gap that occurs during a boom-economy is overheating as resources are being fully used.

Question 6

Upswing

Answer 6

Expansion phase-Consumer confidence increases, growth increases, typically a rise in inflation, unemployment decreases and investment increases

Question 7

Downswing

Answer 7

Opposite contraction phase-Consumer confidence and growth increases, typically a decrease in inflation, unemployment increases and investments decrease