23350097
Description
Flashcards by Sophia Lynch, updated more than 1 year ago
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Created by Sophia Lynch
over 4 years ago
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| Question | Answer |
| What are the four periods of the business cycle? | |
| What is a 'depression'? | A long recession. |
| What happens during a recession? (3) | 1. Occurs after 2 quarters of negative growth in GDP 2. A period when the economy grows at a rate significantly below normal 3. Outputs falls and unemployment rises |
| What is a 'boom'? | A long period of expansion. |
| What is expansion? | A period when the economy grows at a rate significantly above normal. |
| What type of goods are more affected by short-term economic fluctuations? | Durable goods (houses, cars etc) as apposed to non-durable & service industries (builders, food, teachers etc) |
| What is usually the main reason for a recession? | Monetary tightening at the end of an expansion. |
| What keeps the business cycle going? (4) | 1. Business Investment 2. Interest Rates and Credit 3. Consumer Expectations 4. External Shocks (oil supply etc) |
| What do classical economists believe? | The Government should NOT intervene in the market as it clears on its own. Adam Smith & David Ricardo |
| What does the 'Keynesian' theory suggest? | The business cycle can be managed through government intervention in the form of FISCAL POLICY & MONETARY POLICY. The government can manage Aggregate Demand. John Maynard Keynes |
| What does the 'Monetarist' theory believe? | The government should control inflation by controlling the money supply as markets are typically clear and participants have rational expectations. Milton Friedman |
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