2.5.3

Question 1

Characteristics of a boom

Answer 1

• high rates of economic growth
• near full capacity or positive output gaps
• near full employment
• demand- pull inflation
• consumers and firms have a lot of confidence which leads to high rates of investment
• government budgets improve, due to a higher tax revenues and less spending on welfare payments

Question 2

Characteristics of recession

Answer 2

• negative economic growth
• lots of spare capacity and negative output gaps
• demand- deficient unemployment
• low inflation rates
• government budgets worsen due to more spending on welfare payments and lower tax revenues
• less confidence amongst consumers and firms, which leads to less spending and investment