2.5.3 Trade/ Business cycle

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33 Terms

1
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What is the trade (business) cycle?

The fluctuations in economic activity that an economy experiences over a period of time.

2
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What are the four main phases of the trade cycle?

Expansion, peak, contraction (recession), and trough

3
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What happens during the expansion phase?

Increasing economic activity, rising GDP, employment, and income levels

4
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What defines the peak phase?

The height of economic growth where the economy is at its maximum output.

5
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What characterizes the contraction (recession) phase?

Declining economic activity, falling GDP, rising unemployment, and reduced spending.

6
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What is the trough phase?

The lowest point of economic activity before the cycle begins again with expansion.

7
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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.

8
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What is a boom in economic terms?

A period characterized by rapid economic growth and high levels of economic activity.

9
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What is a key characteristic of GDP during a boom?

High GDP growth with a significant increase in production of goods and services.

10
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Example of high GDP growth during a boom?

The tech boom of the late 1990s in the U.S.

11
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How is unemployment affected during a boom?

Unemployment is low due to high demand for labor.

12
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Example of low unemployment during a boom?

U.S. unemployment rates dropped to around 4% during the late 1990s boom.

13
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What happens to consumer spending during a boom?

It increases due to high disposable income and consumer confidence.

14
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Example of increased consumer spending during a boom?

Increased spending on luxury goods, housing, and travel.

15
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How do businesses respond with investment during a boom?

Businesses invest heavily in capital and technology to expand production.

16
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Example of rising investment during a boom?

Surge in technology investments during the dot-com boom.

17
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What inflationary pressures occur during a boom?

High demand can cause increased prices and inflation.

18
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Example of inflation during a boom?

Rising housing prices during economic booms.

19
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How does the stock market behave during a boom?

Stock prices tend to rise due to investor confidence.

20
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Example of stock market optimism during a boom?

Bull markets in stock exchanges.

21
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What is a recession?

A period of declining economic activity lasting more than a few months, affecting GDP, income, employment, and production.

22
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What happens to GDP during a recession?

Negative GDP growth; production declines over two consecutive quarters.

23
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Example of negative GDP growth in a recession?

Significant GDP contractions during the 2008 financial crisis.

24
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How is unemployment affected during a recession?

Unemployment rises due to reduced demand for goods and services.

25
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Example of high unemployment during a recession?

U.S. unemployment peaked around 10% in 2009.

26
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What happens to consumer spending during a recession?

It decreases due to lower disposable incomes and reduced consumer confidence.

27
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Example of decreased consumer spending during a recession?

Reduced spending on non-essential goods and services.

28
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How does business investment change in a recession?

Businesses cut back on investment due to uncertainty and lower demand.

29
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Example of reduced investment during a recession?

Decreased investment in new projects and infrastructure during recessions.

30
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What are deflationary pressures during a recession?

Falling demand causes prices to decrease.

31
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Example of deflation during a recession?

Falling housing prices during the Great Recession.

32
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How does the stock market behave during a recession?

Stock prices decline due to falling corporate profits and economic uncertainty.

33
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Example of stock market declines during a recession?

Major stock market indices fell sharply during the 2008 crisis.