UNIT 23: THE BUSINESS CYCLE

downturn

a decline in economic activity

upturn

an increase in economic activity

expectations

beliefs about what will happen in the future

consumption

purchasing and using goods and services

balance of payments

the difference between the funds a country receives and those it pays for all international transactions.

gross domestic product (GDP)

the total market value of all the goods and services produced in a country during a given period.

demand

the willingness and ability of consumers to purchase goods and services.

supply

the willingness and ability of business to offer goods or services for sale.

save

to put money aside to spend in the future.

equilibrium

a state of balance, for example when supply is the same as demand.

deficit

an amount of money that is smaller than is needed (e.g. when spending exceeds revenues).

surplus

an excess: a quantity that is larger than is needed.

fiscal policy

government actions concerning taxation and public expenditure.

monetary policy

government or central bank actions concerning the rate of growth of the money in circulation.

money supply

the total amount of money available in an economy at a particular time.

Keynesianism

• government intervention in controlling the demand for goods and services

• Fiscal policy

• adjust governmental spending to control inflation

• John Maynard Keynes

Monetarisim

• minimal goverment intervention, market and individual freedom

• monetary policy

• control the money supply t control inflation

• Milton Friedman

expansion, peak, recession, trough

4 phases of the business cycle

expansion

the phase of the business cycle during which output is increasing

Peak

the turning point in the business cycle between an expansion and a contraction; during this phase in the business cycle, output has stopped increasing and begins to decrease

Recession

a downturn lasting more than 6 months is called …….

the phase of the business cycle during which output is falling

depression

a downturn lasting for a year or two is called …….

Trough

the turning point in the business cycle between a recession and an expansion; during this phase, output that had been falling during the recession stage of the business cycle bottom out and begins to increase again (a recovery)