Business Cycle
. -Are the short-run fluctuations in economic activity that can cause output to be above or below the long-run trend.
What are fluctuations in economic activity known as?
The term
economic cycle (or boom-bust cycle)
refers to economy-wide fluctuations in production, trade, and general economic activity.
What are short-run fluctuations of an economy called?
The economy is said to be in
recession
if the growth of GDP is negative. In Figure 9-1, recessions are shaded. Economists call these short-run fluctuations in output and employment the business cycle, even though these fluctuations are actually irregular.
What causes fluctuation in economy?
An increase in consumption – this may be caused by:
a rise in income levels
, an decrease in interest rates, house price inflation. A rise in the level of government spending. A balance of payments surplus.
Are short-run economic fluctuations unpredictable?
Economic
fluctuations are irregular and unpredictable
: Although economic fluctuations are often termed the business cycle, the term ‘business cycle' is misleading because it suggests that economic fluctuations follow a regular, predictable pattern. In reality, economic fluctuations are irregular and unpredictable.
What are some of the key reasons for short-run economic fluctuations?
quantity of goods and services supplied and shifts
the short-run aggregate supply curve to the left. A decrease in the expected price level raises the quantity of goods and services supplied and shifts the short-run aggregate supply curve to the right.
What are the three key facts about macroeconomic fluctuations?
There are three key facts about economic fluctuations that stand out: (1) economic fluctuations are irregular and unpredictable,
(2) most macroeconomic measures fluctuate together, and (3) as the output falls, unemployment rises.
What causes GDP to fluctuate?
GDP fluctuates because
of the business cycle
. When the economy is booming, and GDP is rising, there comes a point when inflationary pressures build up rapidly as labor and productive capacity near full utilization. … As interest rates rise, companies and consumers cut back spending, and the economy slows down.
Which of the following is a significant decline in general economic activity?
A recession
is a significant decline in general economic activity extending over a period of time. A general rule of thumb is that two consecutive quarters of economic contraction constitute a recession. Recessions result in economic hardship for many people and can have long-lasting effects.
When economic activity is declining the economy is said to be in?
A recession
is a period of decline in general economic activity, typically defined when an economy experiences a decrease in its gross domestic product for two consecutive quarters.
How do you control economic fluctuations?
Anti-cyclical Policy
Government of a country takes drastic measures to control the cyclical fluctuations. Also, through the contractionary or expansionary credit policies, the central bank controls the business cycle. Thus, when there is a period of depression, the government should tax less and spend more.
What stage of the economic cycle are we in?
Using the current economic data, it is easy to identify that we are in
the expansion phase of
the business cycle. The current debate is not which phase we are in but where we are in the expansion. To find the answer we must first look at historical business cycles.
What does fluctuating mean?
:
an act or instance of fluctuating
: an irregular shifting back and forth or up and down in the level, strength, or value of something Small fluctuations in prices are to be expected.
What happens when there is a supply shock?
A supply shock is an unexpected event that changes the supply of a product or commodity,
resulting in a sudden change in price
. A positive supply shock increases output causing prices to decrease, while a negative supply shock decreases output causing prices to increase.
What is the first stage of the business cycle?
Expansion
The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services.
What adjusts aggregate supply and demand into balance?
The price level
adjusts to bring aggregate demand and supply into balance.
