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9 Cards in this Set
- Front
- Back
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What are the 4 components of the business cycle?
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The boom/peak
The contraction/downswing The trough The expansion/upswing |
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What are the features of a boom/peak in the business cycle?
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High levels of consumption expenditure; usually on durable and luxury goods
Confidence in economy The profit share of GDP is high - businesses are profitable Firm's don't have any spare production capacity Cyclical unemployment is low Work force is most efficient Inflationary pressure is likely The level of borrowing is high, due to confidence. |
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What are the features of a contraction/downswing in the business cycle?
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Increases in production capacity not required for available demand, investment in capital equipment decreases.
Lowered rate of increase in income, output and expenditure from peak causes uncertainty. Expectations are changed, consumers and firms adjust their spending habit. Interest rates are also generally increased by the government to control amount of borrowing, which is spend on investment. |
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What are the features of a trough in the business cycle?
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High levels of cyclical unemployment
lower company profits lower sales of consumer durables reduced pressure on prices levels of savings increase due to little certainty about the economy lower interest rates to encourage investment |
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What are the features of an expansion/upswing in the business cycle?
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Capital goods eventually need replacing, bringing on more investment
Businesses become more efficient to maintain profits |
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What are the three types of indicators?
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Leading indicators
Lagging indicators Coincident indicators |
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What is a leading indicator?
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Leading indicators foreshadow a change in economic activity. e.g. building approvals, share prices, levels of inventory held by firms, new employment vacancies, general business confidence.
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What is a lagging indicator?
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Lagging indicators show changes after trends in the rest of the economy have occurred. e.g. Unemployment levels and and consumer debt
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What is a coincident indicator?
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Coincident indicator change at the same time as the level of economic activity, e.g. manufacturing output, production of building materials, sales of consumer durables, interest rates and GDP growth.
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