Trade cycle
Fluctuations in real GDP around trend growth.
Trade cycle
Key definitions
Boom
Rapid growth, high confidence, rising inflation pressure.
Recession
Two consecutive quarters of negative growth.
Recovery
Return to positive growth after downturn.
Downturn
Slowing growth and rising unemployment.
Procyclical variables
Move with GDP — investment, profits.
Countercyclical policy
Policy that dampens the cycle.
Automatic stabilisers
Taxes and benefits that cushion cycles.
Confidence
Animal spirits amplify cycles.
Multiplier
Amplifies upswings and downswings.
Key concepts
Business investment is highly cyclical.
Government may use fiscal policy counter-cyclically.
Relevant tips
- Link cycle phases to AD and unemployment.