Economic Trade Cycle

This shows how economic growth can fluctuate within different phases, for example:

• i) a boom (which is high growth causing inflation,
  ii) Peak (top of trade cycle
  iii) Downturn or Recession ( fall in economic growth)
  iv) Recovery (upturn of economic growth)

· Some economists suggest that there is a political business cycle, this is when politicians try to have a boom before an election
· Since the Bank of England set Monetary policy in 1997 the trade cycle has been more stable in the UK

Output Gap

· If potential output grows faster than actual output there will be an increase in spare capacity, the shortfall between actual and potential output increase.
· With fast economic growth and increases in AD then the output gap gets smaller

· The Long Run Trend Rate of Economic Growth:

This refers to the average sustainable rate of economic growth in an economy. For example in the UK this is about 2.5%.

· Therefore this is the rate of increase in LRAS and the productive capacity of the economy

Essays and Revision Notes on Economic Growth

• Economic Growth Notes
• Benefits of Economic Growth
• Causes of Economic Growth
• Causes of Recessions
• Costs of Economic Growth
• The Great Depression 1929-1939
• Recessions
• Trade Cycle
• UK Recession 1980-81
• UK Recession 1991-92
• Supply Side Policies
• Supply Side Policies in the UK
• Aggregate Demand