The Economic Cycle

Quick revise

This shows the rate of economic growth compared to long term trend rates

The economic cycle shows differences over time between rapid economic growth (boom, recovery) and alternative periods where the economy is not growing or is declining in size (recession or contraction)

The measure used to assess the growth of the economy is the comparison of gross domestic product or GDP over time.


The Market value of all goods and services produced within the country  (what we produce within the UK/output)

Costs and Benefits of Economic Growth

There are costs and benefits that are associated with economic growth. Some costs are a result of externalities which occur due to economic growth.

Economists focus on the idea of economic growth as being sustainable which means it can continue over the long term.

The Costs of Economic Growth

Economic growth causes costs for the economy:

  • Inflation risks – either demand-pull or cost-push
  • The environment – as output increases negative externalities can increase e.g. pollution
  • Regional disparities or differences – can lead to greater differences between rich and poor
  • Inequalities of income and wealth
Benefits of Economic Growth

Economic growth has an accelerator effect on capital investment. Increases taxation for the government.

Environmental benefits – if the economy is growing there is more money to invest in cleaner technologies thereby reducing pollution

Economic growth has a number of benefits:

  • Improvement to living standards and lower rates of poverty – especially in developing countries
  • Falling levels of unemployment – Economic growth stimulates levels of employment