Economic Cycle

Economic Cycle

Economic Boom
1. Why?
  1. A boom occurs when real GDP grows much faster than the trend growth rate of about 2.5% per year
2. Main Characteristics
  1. High AD
  2. Increased employment
  3. High demand for imports
  4. Impacts on government spending
    1. Lower spending on benefits
  5. Strong company profits
  6. Cyclical boost to productivty
  7. High risk of inflation
Slowdown
1. A slowdown occurs when the rate of growth decelerates
2. Although the national output is still rising as it stays in positive figures
3. If the economy grows without falling into a recession, this is soft-landing
Recession
1. Why?
  1. A recover occurs when there is a fall in the level of national output of two consecutive quarters
2. Potential FEATURES
  1. Falling inflation
  2. Negative growth
  3. Higher unemployment
  4. Lower interest rates
  5. Fall in consumer spending
  6. Shrinking markets - housing market
  7. Weaker pound
3. Potential CAUSES
  1. External Shocks
  2. Deterioration in leading domestic sectors
  3. Unsustainable levels of demand
  4. Slump in private sector investment
4. 2009 Recession
  1. Credit Crunch
  2. Reduction in real disposable incomes
  3. Fall in consumer confidence
  4. UK exports decline
  5. Weaker demand / Falling proftis
Recovery
1. Why?
  1. A recovery occurs when real national output picks up from the trough
2. Kick- start a recovery
  1. Cuts in interests rates
  2. A rise in government borrowing
  3. A policy of quantitative easing
  4. Temporary cuts in VAT
3. Why so weak for UK?
  1. HIgh levels of debt
  2. Falling real income
  3. Low confidence
  4. Slow growth in UK exports

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