2.5.3 Trade (business) cycle

what is the trade cycle?

• the trade cycle refers to the fluctuations in economic activity that an economy experiences over time.

what are the 4 main phases of the trade cycle?

• expansion/recovery: period of increasing economic activity, rising GDP, employment and income levels.

• peak/boom: the economy is at its maximum output.

• contraction/recession: period of declining economic activity, falling GDP, rising unemployment, and reduced spending.

• trough: the lowest point of economic activity.

what are the characteristics of a boom?

• high gdp growth: significant increase in the production of goods/services.

• low unemployment: high demand for labour leads to low unemployment rates.

• increased consumer spending: high levels of disposable income and consumer confidence drive spending.

• investment: businesses invest heavily in capital and technology to expand production.

what are the characteristics of a recession?

• high unemployment: reduced demand for goods/services leads to job losses.

• decreased consumer spending: lower disposable incomes and consumer confidence reduce spending.

• reduced investment: businesses cut back on investment due to uncertainty and lower demand.