Flashcards
The Business Cycle & Economic Thought
Cards in this deck (11)
- 1What are the four periods of the business cycle?
- 2What is a 'depression'?A long recession.
- 3What 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 - 4What is a 'boom'?A long period of expansion.
- 5What is expansion?A period when the economy grows at a rate significantly above normal.
- 6What 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)
- 7What is usually the main reason for a recession?Monetary tightening at the end of an expansion.
- 8What keeps the business cycle going? (4)1. Business Investment
2. Interest Rates and Credit
3. Consumer Expectations
4. External Shocks (oil supply etc) - 9What do classical economists believe?The Government should NOT intervene in the market as it clears on its own.
Adam Smith & David Ricardo - 10What 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 - 11What 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