- In general, as an economy grows it goes through 4 stages. This is known as the economic cycle:
- Boom.
- Recession.
- Slump.
- Recovery.
Stage 1: Boom
Boom describes a period of above average economic growth.
- The living standard increases.
- More revenue is generated for the government due to high employment rates and increased consumer spending.
- Inflation starts to increase.
Stage 2: Recession
Recession is a period in which economic growth falls below average.
- Unemployment rates gradually start to rise.
- consumer spending slows.
- More businesses fall.
- The government receives less income.
- Inflation decreases and may cause deflation.
Stage 3:Slump
A slump occurs if a recession lasts for a long period of time. Economic growth is low and can become negative.
- Unemployment rates are high.
- Consumer spending is low.
- Inflation is low.
Stage 4: Recovery
An economy is in recovery when its economic growth begins to rise again.
- Unemployment rates fall.
- Consumer spending rises.
- Inflation stops decreasing.