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Economic Cycles Explained

The document discusses economic cycles, which include periods of expansion and recession. Expansions occur when economic growth outpaces trend growth, while recessions are periods of declining output and contraction. Key factors in recessions include inflation, which reduces purchasing power, and can stem from increased production costs, higher energy prices, or national debt. A depression is a particularly severe and prolonged recession where output falls over 10%. Recovery follows as the economy strengthens and output begins to rise again from recession lows, sometimes encouraged by government intervention like increased spending or tax cuts.

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77 views2 pages

Economic Cycles Explained

The document discusses economic cycles, which include periods of expansion and recession. Expansions occur when economic growth outpaces trend growth, while recessions are periods of declining output and contraction. Key factors in recessions include inflation, which reduces purchasing power, and can stem from increased production costs, higher energy prices, or national debt. A depression is a particularly severe and prolonged recession where output falls over 10%. Recovery follows as the economy strengthens and output begins to rise again from recession lows, sometimes encouraged by government intervention like increased spending or tax cuts.

Uploaded by

Asmo De-Lis
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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UNITE 4 Text A ECONOMIC CYCLES

Kurkov Vladislav

All modern industrial economies experience significant swings in


economic activity. Periods of economic prosperity are typically
called expansions or booms; periods of economic decline are called
recessions or depressions. The combination of expansions and
recessions, the ebb and flow of economic activity, is called an
economic or business cycle.

Expansions and recessions occur at irregular intervals and last for


varying lengths of time. For example, the 1980 recession lasted just
six months, while the 1981 recession lasted sixteen months.

An expansion occurs when real national output is rising at a rate


faster than the trend rate of growth. Some of the characteristics of
an expansion include:

 a fast growth of consumption helped by rising real incomes,


strong confidence and a surge in house prices and other forms
of personal wealth;
 a pickup in the demand for capital goods as businesses invest
in extra capacity to meet rising demand and to make higher
profits;

As indicated by the term peak, the top of the business cycle occurs
when economic growth has reached a point where it will stabilize for
a short time and then reverse direction. A recession means a fall in
the level of national output, i.e. a period when growth is negative,
leading to a contraction in employment, incomes and profits.Many
factors contribute to an economy's fall into a recession, but the
major cause is inflation. The higher the rate of inflation, the smaller
the percentage of goods and services that can be purchased with
the same amount of money. Inflation can happen for reasons as:

 varied as increased production costs,


 higher energy costs
 national debt.
A depression is a prolonged and deep recession leading to a
significant fall in output and average living standards. A depression
is where real GDP falls by more than 10% from the peak of the cycle
to the trough.

A recovery occurs when real national output picks up from the


trough reached at the low point of the recession. It is a time when
the economy becomes stronger and there is an upturn in the
business cycle.

Recovery can occur for a number of reasons. In order to stimulate


economic activity the government may intervene by, for example,
increasing its level of spending or reducing taxes. In December
2008, for instance, the standard rate of VAT in the UK was
temporarily reduced (until January 2010) from 17.5% to 15% in an
effort to encourage consumers into the shops. Firms that had run
down stocks of goods during the recession may increase their
production, placing orders with their suppliers and taking on more
staff.

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