Recession and the economic cycle Cambridge IGCSE Economics (9–1) revision
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In plain words
Economies do not grow smoothly. Output climbs for some years, slows, sometimes falls, and then picks up again. These ups and downs are the economic cycle.
The low point matters most to ordinary people, because that is when jobs go.
4 things to know
- A recession is a fall in real GDP for two consecutive quarters (six months in a row).
- The economic cycle has four stages. Boom: fast growth, low unemployment, rising inflation. Downturn: growth slows. Recession: output falls, unemployment rises, inflation falls. Recovery: output begins to rise again.
- A recession may be caused by a fall in total demand (households, firms or foreign buyers spending less), or by a fall in the quantity or quality of resources.
- Consequences for consumers and workers: lower incomes and job losses. For firms: lower sales and profits, and some close. For the government: less tax revenue and more spending on benefits, so the budget deficit grows.
Tips and tricks
- Two quarters, falling, real GDP: all three parts are needed in the definition of a recession. Slower growth is a downturn, not a recession.
- In a recession inflation usually falls, because firms cannot raise prices when demand is weak. Unemployment and inflation tend to move in opposite directions over the cycle.
It lands in your notebook with its questions as flashcards.
Recession and the economic cycle: 5 questions and answers
These are the quiz’s questions. Do the quiz first, then come back here for the ones that got you.
A recession is
Output must actually fall, for two quarters in a row.
In which stage of the economic cycle is unemployment usually lowest?
Firms are producing at their peak and need the most workers.
Which is most likely to cause a recession?
Lower spending means lower total demand, so firms cut output.
What usually happens to tax revenue in a recession?
Lower incomes, spending and profits all mean less tax collected.
Which stage follows a recession?
Output starts to rise again.
Quiz
5 questions
Tap an answer and you’ll see straight away whether it’s right, and why.
Worksheet
3 questions, 8 marks. Write your answers on paper, then check them.
Recession and the economic cycle
Cambridge IGCSE Economics (9–1) 0987 · 8 marks · papermunch.org
Name ______________________________ Date ______________
Define a recession.[2]
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A fall in real GDP for two consecutive quarters.
Describe what happens to economic growth, unemployment and inflation in a boom.[3]
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Economic growth is high, unemployment is low, and inflation tends to rise because demand is strong.
Explain how a recession affects a government's budget.[3]
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Incomes, spending and profits fall, so the government collects less tax. More people are unemployed, so it spends more on benefits. Both push the budget towards a deficit.
Answers: Recession and the economic cycle
- 1. A fall in real GDP for two consecutive quarters.
- 2. Economic growth is high, unemployment is low, and inflation tends to rise because demand is strong.
- 3. Incomes, spending and profits fall, so the government collects less tax. More people are unemployed, so it spends more on benefits. Both push the budget towards a deficit.