Unit 2 Macro: Economic Cycle Glossary

A short glossary of key terms connected to the economic cycle

Accelerator effect
Capital investment is linked positively to expected growth of consumer demand

Animal spirits
The state of confidence or pessimism held by consumers and businesses.

Demand shock
An unexpected shock to one or more of the components of aggregate demand e.g. From recession in the economy of a major trading partner

Depression
Used to describe a severe recession which may become a prolonged downturn in the economy and where GDP falls by at least 10 per cent.

Double dip recession
When an economy goes into recession twice without a full recovery in between

Economic cycle
Variations in the annual rate of growth of an economy over time

Economic shocks
Unpredictable events such as volatile prices for oil, gas and foodstuffs.

Economic stability
When indicators such as growth, prices and unemployment do not change much from one year to another.

Expectations
How we expect the future to unfold – this can have powerful effects on the spending decisions of households, businesses and the government

Fine-tuning
Changes in policy designed to gradually influence demand, output and prices

Forecast
A prediction made about the likely future performance of an economy

Lagging indicators
Indicators which tend to follow economic cycles e.g. unemployment

Leading indicators
Indicators which predict future economic trends e.g. consumer confidence

Output gap
The difference between potential and actual real national income in an economy

Peak
The high point of the economic cycle beyond which a recession starts

Recession
A period of at least six months when an economy suffers a fall in output

Slowdown
A fall in the rate of growth of an economy but not a full-scale recession

Slump
A sustained decrease in real GDP and a persistent rise in unemployment

Soft landing
A slowdown in economic activity but which does not result in a recession

Supply shock
An unexpected shock to one or more of the components of aggregate supply e.g. Higher oil and gas prices or a rise in the cost of imported food

Target
A target is an objective of government policy e.g. low inflation or rising employment

Trade-off
A trade-off implies that choices have to be made between different objectives of economic policy for example a choice between unemployment and inflation

Trough
The low point of the economic cycle beyond which a recovery starts