Economic Concepts: Business Cycle and Trade

Business Cycle

Refers to the recurring pattern of expansion and contraction in economic activity over time.

Expansion

Rising income, employment, investment, and output.

Peak

Economy hits its highest point; inflation may rise.

Contraction/Recession

Decline in output, income, and jobs.

Trough

Lowest point of economic activity; recovery begins after.

Internal Trade

Takes place within the boundaries of a country.

International Trade

Trade between two or more countries.

Free Trade

Allows unrestricted exchange of goods/services across borders.

Protection Trade (Protectionism)

Imposes barriers like tariffs, quotas, and import duties to protect domestic industries.

Foreign Exchange Rate

The rate at which one currency is exchanged for another.

Fixed Exchange Rate

Set and maintained by the government or central bank.

Floating Exchange Rate

Determined by market forces of demand and supply.

Balance of Payment (BoP)

A record of all economic transactions between a country and the rest of the world during a specific time.

Current Account

Trade in goods/services, income, and transfers.

Capital Account

Investments, loans, and banking capital.

Balance of Trade (BoT)

The difference between the value of exports and imports of goods only.

Trade surplus

If exports > imports.

Trade deficit

If imports > exports.