Business Cycles
Business cycles occur around trends in a country’s overall economic activity. This is measured by its
gross domestic product (GDP), which is calculated by adding together the total value of all goods and
services produced domestically during a calendar year.
To understand where an economy is in the economic cycle, governments undertake significant
efforts to measure the economic activity that is taking place. The most closely watched indicator of
economic activity is GDP.
1)When the level of GDP falls compared with the previous quarter, the economy is said to be
contracting.
2) Two successive quarters of declining GDP and it is said to be in recession.
3) When GDP rises compared with the previous quarter, the economy is expanding.
4)The peak of a cycle refers to the point of which GDP is at its highest level before it starts to
fall.
Questions - Use Your Note Taker To Jot Down Ideas / Calculations
In the first quarter of an economic year, the UK suffers negative growth. In which other quarter(s), if
any, would it also need to experience negative growth before the UK was deemed to be in
recession?
a) Quarters two and three.
b) Quarter two only.
c) Any two other quarters.
d) Either quarter two or quarter three.
B)
The definition of a recession is two consecutive quarters of negative GDP growth. So following the
first quarter of the year showing negative growth it would require only the second quarter of the
year to also show negative growth in order for the economy to be in recession.
An economy’s gross domestic product for the first three quarters of the year is £1.1 billion, £1.3
billion and £1.2 billion respectively. After quarter three the economy is said to be:
a) contracting.
b) in recession.
c) in a trough.
d) in a depression.
A)
When the level of GDP falls compared with the previous quarter, the economy is said to be
contracting.
- Further Study Text: Pages 112