Assessment Task No. 1 - Research, investigation and communication task
Outcomes assessed :
P1 - Demonstrates understanding of economic terms, concepts and relationships
P2 - Explains the economic role of individuals, firms and government in the economy
P4 - Compares and contrasts aspects of different economies
P7 - Identifies the nature and causes of economic problems and issues for individuals firms and governments
P8 - Applies appropriate terminology, concepts and theories in economic contexts
P9 - Selects and organises information from a variety of sources for relevance and reliability
P10 - Communicates economic information, ideas and issues in appropriate forms
Essay Question :
1. Explain how the business cycle model represents the dynamic nature of the modern economy. ( 6 marks )
2. With reference to recent developments in the global economy, discuss how the business cycle model can be used to explain the changing fortunes of the Australian economy one Asian economy. ( 14 marks )
The business cycle model represents the dynamic nature of the modern economy, this cycle is defined as a downward and upward movement in production output of goods and services in an economy. The business cycle is customarily measured in GDP (Gross Domestic Product) around it’s long term growth trend. The business cycle is globally consumed by various economies, some of which are in constant economic growth displayed by South Korea and Australia. This model can be used to assess the changing fortunes of one’s economy, which is the success or failure of a person or enterprise over a period of time.
The business cycle consists of four phases.
Growth, peak, recession and trough. Refer to figure 1. These four phases do not arise at regular intervals but nonetheless hold discernible indicators. The economy is growing when expansion is being occured between the trough and the peak, this indicates that the GDP is increasing at a healthy rate of 2-3.0%. Hence showcasing that unemployment rates are sustained at 4.5-5.0% and inflation is around it’s 2.0% target goal. When the economy begins to exceed the 3.0% GDP growth rate and inflation outstands it’s 2.0% goal, this is an indicator of the growth phase nearing its end. Investors will now start to generate asset bubbles being in the state of “irrational exuberance”. The second phase of the business cycle is the peak. This is the point in time when expansion is progressing into the contraction phase. The peak is unidentifiable until the economy is in a downswing and incoming into recession. Recession is now the third phase, this begins at the peak and ends at the trough. A downswing is unidentifiable until GDP growth rates hit below 2% and once this percentage transitions into a negative, it is now identifiable as a recession. With this, unemployment rates commence to inflate. Recession does not develop until towards the end of the contraction phase because it is a lagging indicat...