Questions and Answers
What are the four terms associated with the business cycle?
Expansion, contraction, peak, recession
An expansion in the business cycle refers to a decline in economic activity.
False
What happens to consumer confidence during an expansion?
It increases.
Which of the following factors can influence the business cycle? (Select all that apply)
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What is defined as a recession in the business cycle?
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When an economy experiences a contraction, rising levels of ______ occur.
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During which phase of the business cycle is the standard of living at its highest?
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What impact did the GFC have on Australian households?
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Study Notes
Business Cycle Overview
- Fluctuation of GDP reflecting economic health over time.
- Phases include expansion, contraction, peak, and recession.
- Continuous movement is natural as economies do not remain constant.
Influencing Factors
- Key influences on the business cycle: taxation, government expenditure, exports/imports, employment, productivity.
- These factors affect individual wealth and standard of living.
Expansion Phase
- Characterized by economic growth: increased consumption, consumer confidence, production, income, investment, and reduced unemployment.
- Positive effects on the standard of living due to the enhanced circular flow of income.
- Example: Australia’s Mining Phase (2010-2013) drove economic growth through high demand, particularly from China.
- Real gross domestic income increased by approximately 13% in 2013 due to inflation and higher commodity prices.
Peak Phase
- The highest point of the business cycle where growth factors reach their maximum.
- In Australia, the peak occurred around 2013, with GDP growth climbing 6% that year.
- Higher income levels improved individuals' purchasing power, leading to increased consumption.
Contraction Phase
- A period of economic decline where key indicators (consumption, investment, confidence) decrease.
- Results in rising unemployment and shrinking GDP.
- A contraction lasting two or more quarters is classified as a recession.
Recession and Depression
- A significant recession impacts standard of living adversely.
- Example: Global Financial Crisis (GFC) around 2009 led to a nearly 10% loss in household wealth due to declining stock values.
- Australian currency depreciated over 30%, leading to decreased trade and rising unemployment rates (5.8% by December 2009).
Impact on Standard of Living
- Extended economic decline correlates with lower standards of living.
- Reduced consumer spending as individuals opt for saving amidst economic uncertainty.
- The dynamic nature of the business cycle continuously impacts personal and national economic wellbeing.
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Description
Explore the key phases of the business cycle including expansion, peak, contraction, and recession. Understand how various factors like taxation and productivity influence economic health. This quiz delves into real-world examples and the implications on the standard of living.
