The trade (business) cycle

Figure 2 shows the long-run trend rate of unemployment and the actual rate of unemployment in a country over a period of time.

At which one of the following points was the economy most likely to be in the recession phase of its economic cycle?

Explain possible reasons why a country may enter a recession.

Table 3 shows different combinations of performance for three macroeconomic indicators.

Which one of the combinations, A, B, C or D, is most likely to indicate an economy experiencing an economic boom?

Assess policies which can be used to reduce cyclical instability in the UK.

Which one of the following combinations of possible shocks: A, B, C, or D, is most likely to move an economy from a negative output gap to a positive output gap?

An unexpected increase in

Explain how a sustained slowdown in the world economy is likely to affect living standards in the UK.

Extract F (lines 10–12) states ‘The Austrian economist, Friedrich Hayek, highlighted artificially low interest rates and excessive credit creation as being the main causes of cyclical instability.’

Using the data in the extracts and your knowledge of economics, evaluate the view that maintaining low interest rates for a sustained period of time may be damaging to the UK’s macroeconomic stability.

The table below shows indices for real GDP and consumer prices in an economy over six quarters.

During these six quarters the economy experienced

Turn over Section B