1. Macroeconomic Indicators
The Economic Cycle and Economic Growth

2. Cycles Peak, boom, overheating Downturn
Recession, depression, trough, slump
Recovery, expansion

3. Cycles Business cycle/trade cycle/economic cycle Kondratiev K-wave
Kuznets Building cycle
Kitchin Inventory cycle
Keynes Multiplier – accelerator
Schumpeter Technology/innovation
Friedman Monetary

4. Output Gaps
The difference between actual growth and the trend rate of growth
Where would these be on your chart?
Output lost in a recession is regained in a boom but….

5. Hysteresis
The trend rate of growth can shift downwards if there is a deep recession due to permanent losses of human and physical capital
Loss of skills – structural change
Long term unemployed
Cut backs in investment
Outdated technology
‘potential’ falls

6. Hysteresis and Growth Trend

7. Business cycle models Shocks – Demand or supply side Exogenous shocks
Endogenous shocks

8. 1 DS end
2. Ss ex
3. Ds ex
4. Ds end
5. Ds ex
6. Ss ex

9. Ds ex
Ss end
Ss ex

10. Explain how a major world recession, an exogenous shock to the UK economy, could trigger a business cycle.
(10/15 marks)

11. Shocks and ADAS Key terms Long-term growth rate Actual growth
Potential growth
Trend rate of economic growth

12. Actual and Potential Growth
AB to CD shows potential growth
A to C or A to B shows actual growth
You can have an increase in potential growth without having actual growth

13. Task Using a PPF diagram, show the following
An economy with full employment experiencing economic growth
An economy initially with full employment experiencing a recession, keeping its AS capacity constant
An economy in recession returning to full employment, with its AS capacity constant
An economy which initially has a small and constant output gap, experiencing economic growth

14. ADAS

15. A negative demand side shock
General Price Level
National Income
AD1
SRAS Pe Ye
LRAS
Yfc
AD2 Y2 P2
Caused by?
Effect on?
PPF
Unemployment
GDP
Inflation

16. A positive demand side shock
Finish it off
Cause?
Impact upon
GDP
PPF
Inflation
Unemployment

17. A positive demand side shock
General Price Level
LRAS = potential GDP
SRAS1 P2 P1
AD2
AD1 Y1
Yfc Y2
National Income

18. Show the effect on an ADAS diagram of the following
Supply side shocks
Show the effect on an ADAS diagram of the following
Increased rates of emigration
A fall in international commodity prices

19. Supply side shocks General Price Level National Income AD SRAS1 P1 Y1
LRAS
Yfc
SRAS2 P2 Y2
SRAS3 Y3

20. Causes of economic growth
Economic stability and sound macroeconomic policies
Increased labour activity/participation
Increased labour productivity
Investment in physical capital
Improved human capital
Enterprise

21. Is growth good? Debate
Advantages
Disadvantages

22. Is growth good? Disadvantages Advantages
Improvements in living standards: More jobs:
The accelerator effect of growth on capital investment:
Greater business confidence:
The “fiscal dividend”:
Potential environmental benefits
Benefits from growth driven by technological change
Disadvantages
Inflation
Environmental concerns
Inequality

23. Kuznets curve - explain

24. What would the question be?

25. What would the question be?

26. Applied Economics
The Impact on the economy