UNIT 14 - THE BUSINESS CYCLE

business cycle model

A model that shows how a country's economy grows and shrinks over time. It's like a wave pattern that generally goes up in the long run but has ups and downs in the short term.

expansion

the phase of the business cycle during which output is increasing

recession

the phase of the business cycle during which output is falling

depression

a deep and prolonged recession

peak

the turning point in the business cycle between an expansion and a contraction

trough

the turning point in the business cycle between a recession and an expansion

recovery

when GDP begins to increase following a contraction and a trough in the business cycle;

potential output

the level of output an economy can achieve when it is producing at full employment; when an economy is producing at its potential output, it experiences only its natural rate of unemployment, no more and no less.

growth trend

the straight line in the business cycle model, which is usually upward-sloping and shows the long-run pattern of change in real GDP over time

positive output gap

the difference between actual output and potential output when an economy is producing more than full employment output; when there is a positive output gap, the rate of unemployment is less than the natural rate of unemployment and an economy is operating outside of its PPC (The production possibilities curve).

negative output gap

the difference between actual output and potential output when an economy is producing less than full employment output; when there is a negative output gap, the rate of unemployment is greater than the natural rate of unemployment and an economy is operating inside its PPC.

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

the economic theory that government monetary and fiscal policy should stimulate business activity and increase employment in a recession

balance of payments

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

GDP

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

downturn

a decline in economic activity

upturn

an increase in economic activity