Inflation
Economic Objectives
Conflict of Objectives
Unemployment
Role of Government
Inflation/ Unemployment Trade off
Explain the trade cycle
Trade/Business/Economic Cycle
Over a given period of time (5-8yrs) the level of economic activity will tend to fluctuate
The trade or business cycle is a pattern of expansion (recovery) and contraction (recession)
Zone of desired economic activity or ‘trend growth’
Boom (Peak)
^ Consumption = High aggregate demand
^GDP = ^ Price
< Employment
^ Interest rates
^ Aus. Dollar
All resources are being utilised
Inflation is high
The economy is trying to produce beyond the PPF
Downturn (Slump)
-< Consumption
-< GDP
-^ Unemployment
- Prices
- Interest Rates
- Aus. $
< Foreign Investment
Slowdown in production/investment/economic growth
Trough (Recession)
High unemployment
Little/no economic growth
Very low consumer demand
Production falls/investment falls – disinterest
Slowdown in demand for production resources
Recovery
Everything starts to go back up
Confidence will grow
Production rises = investment rises
Increase in flow of credit
The Trend line (Economic growth in GDP)
The trend line represents the growth path of real GDP
There are obviously deviations from the trend line. This is called the output gap
The zone of desired economic growth
Psychological effects affect fluctuations.
The business cycle is a culmination or summary of a number of different economic indicators
1. Lagging Indicators
2. Co-incident indicators
3. Leading indicators Lagging indicators of economic activity tell economists what level of activity was occurring some time ago (usually 3 months) not what is actually happening now
Lagging examples include
GDP (Also