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What is the trade (business) cycle?
The fluctuations in economic activity that an economy experiences over a period of time.
What are the four main phases of the trade cycle?
Expansion, peak, contraction (recession), and trough
What happens during the expansion phase?
Increasing economic activity, rising GDP, employment, and income levels
What defines the peak phase?
The height of economic growth where the economy is at its maximum output.
What characterizes the contraction (recession) phase?
Declining economic activity, falling GDP, rising unemployment, and reduced spending.
What is the trough phase?
The lowest point of economic activity before the cycle begins again with expansion.
Give a real-world example of a business cycle.
The global economy during the 2008 financial crisis experienced a deep recession followed by gradual recovery.
What is a boom in economic terms?
A period characterized by rapid economic growth and high levels of economic activity.
What is a key characteristic of GDP during a boom?
High GDP growth with a significant increase in production of goods and services.
Example of high GDP growth during a boom?
The tech boom of the late 1990s in the U.S.
How is unemployment affected during a boom?
Unemployment is low due to high demand for labor.
Example of low unemployment during a boom?
U.S. unemployment rates dropped to around 4% during the late 1990s boom.
What happens to consumer spending during a boom?
It increases due to high disposable income and consumer confidence.
Example of increased consumer spending during a boom?
Increased spending on luxury goods, housing, and travel.
How do businesses respond with investment during a boom?
Businesses invest heavily in capital and technology to expand production.
Example of rising investment during a boom?
Surge in technology investments during the dot-com boom.
What inflationary pressures occur during a boom?
High demand can cause increased prices and inflation.
Example of inflation during a boom?
Rising housing prices during economic booms.
How does the stock market behave during a boom?
Stock prices tend to rise due to investor confidence.
Example of stock market optimism during a boom?
Bull markets in stock exchanges.
What is a recession?
A period of declining economic activity lasting more than a few months, affecting GDP, income, employment, and production.
What happens to GDP during a recession?
Negative GDP growth; production declines over two consecutive quarters.
Example of negative GDP growth in a recession?
Significant GDP contractions during the 2008 financial crisis.
How is unemployment affected during a recession?
Unemployment rises due to reduced demand for goods and services.
Example of high unemployment during a recession?
U.S. unemployment peaked around 10% in 2009.
What happens to consumer spending during a recession?
It decreases due to lower disposable incomes and reduced consumer confidence.
Example of decreased consumer spending during a recession?
Reduced spending on non-essential goods and services.
How does business investment change in a recession?
Businesses cut back on investment due to uncertainty and lower demand.
Example of reduced investment during a recession?
Decreased investment in new projects and infrastructure during recessions.
What are deflationary pressures during a recession?
Falling demand causes prices to decrease.
Example of deflation during a recession?
Falling housing prices during the Great Recession.
How does the stock market behave during a recession?
Stock prices decline due to falling corporate profits and economic uncertainty.
Example of stock market declines during a recession?
Major stock market indices fell sharply during the 2008 crisis.