Business cycle and economic development
Part 1 Reading
TASK 1 Discussion
1. What is a business cycle?
2. Why do economies do well or badly?
3. What are the features of a prosperous economy?
4. What happens if an economy is in recession?
5. What might help an economy recover from the recession?
6. What is the role of the government in economic development?
7. What are economic indicators and which ones do you know?
TASK 2 Reading
A THE BUSINESS CYCLE
The business cycle is a series of rises and falls in
economic activity over a period of time, i.e.
fluctuations in the Gross Domestic Product (GDP).
Most economic theories mention four stages:
expansion, peak, contraction (recession), and
trough. Other experts refer to phases of prosperity,
recession, depression, and recovery. They do not
occur at regular intervals, but they have
recognisable indicators. Business cycles vary from
more than one year to ten or twelve years.
STAGES OF THE BUSINESS CYCLE
1. Expansion
An economic expansion is a period of growth throughout an economy. In this stage, there is an increase in positive
economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services.
The stock market experiences rising prices, and investors are confident. Businesses receive more funding and make
more, and consumers have more money to spend.
The expansion phase nears its end when the economy begins to grow too fast. This is called overheating - the
unemployment rate is well below the natural rate, and inflation is increasing. Stock market investors become too
enthusiastic about prices and believe they will continue to rise - this causes stock prices to rise to a point where they
are very overvalued.
2. Peak
The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum
limit of growth is achieved. Economic indicators do not grow further and are at their highest. Prices are at their peak.
Consumers tend to reconsider their budgets at this point.
3. Contraction
The contraction begins after the economy peaks and it ends when the GDP and other indicators stop decreasing. The
demand for goods and services starts declining rapidly. Producers do not notice the decrease in demand instantly and
go on producing, which creates a situation of excess supply in the market. Prices tend to fall.
When the GDP rate is negative, the economy enters a recession. Businesses lay off employees, the unemployment
rate rises above normal levels, and prices begin to decline.
4. Trough
In the contraction stage, the economy hits the lowest point. There is a further decline until the demand and supply of
goods and services contract to reach their lowest point, i.e. the trough. After that, the economy starts growing, which
is called the recovery.
B ECONOMIC DEVELOPMENT POLICIES
Policies of economic development cover three major areas:
● Governments’ efforts to meet broad economic objectives such as price stability, high employment, and
sustainable growth. Such efforts include monetary policies and fiscal policies, regulation of financial
institutions, trade, and tax policies.
● Programmes that provide infrastructure and services such as motorways, parks, affordable housing, and
crime prevention.
● Job creation and job retention, neighbourhood development, workforce development, small business
development, and real estate development.
C DEVELOPMENT INDICATORS AND INDICES
Development indicators are a method used to measure how developed a country is. They are also used to compare
levels of development between countries. There are two categories of development indicators – economic and social.
Economic development indicators examine among others the Gross Domestic Product, Gross National Product,
inflation, balance of trade, credit rating, national debt, etc. Social development indicators focus on the literacy rate,
life expectancy, birth rate, people per doctor, etc. Using a combination of indicators can be a more accurate way of
measuring development. For example, the Human Development Index (HDI) combines data for life expectancy, adult
literacy and GDP per capita to produce one single measure, which puts countries into different levels of human
development.
Gross Domestic Product (GDP)
Gross domestic product is a measure of economic activity in a country. It is calculated by adding the total value of a
country’s annual output of goods and services.
Gross National Product (GNP)
GNP is calculated by adding to the GDP the income earned by residents from investments abroad, less the
corresponding income sent home by foreigners who are living in the country.
National debt
National debt is the total unpaid amount of money borrowed by a country’s government. It is often described as a
burden, because debt incurred by one generation may become a problem for later generations, especially if the money
borrowed is not invested wisely.
Balance of trade
The balance of trade is the difference between the monetary value of exports and imports in an economy over a
certain period. A positive balance of trade, known as a trade surplus, happens if the country exports more than is
imports. A negative balance is called a trade deficit or, informally, a trade gap.
Credit rating
A credit rating estimates the creditworthiness of a country based on its credit history. It is an evaluation of a potential
borrower’s ability to repay debt to the lender. Credit ratings are calculated from financial history and current assets
and current liabilities. A poor credit rating indicates a high risk of defaulting on a loan, and leads to high interest rates,
or the refusal of a loan by the creditor.
Listening 1 - Economic development and economic growth
TASK 1 Lead-in
Before you listen, think about the following:
1. Is there a difference between economic growth and economic development?
2. What problems may rapid economic growth cause?
TASK 2 Listening
Listen to the recording on the difference between economic growth and economic development and fill in the gaps with
up to three words.
Economic growth and economic development are (1)___________, but different concepts. Economic growth is a rise
in the country’s (2)___________ measured by a percentage change in the GDP or national income per capita.
Economic development is a concept which includes measures such as the (3)___________ and sustainable
development goals. It tracks progress in countries expanding the economic, social, and (4)___________ of the
population.
The economic growth does not inevitably lead to economic development. The first reason is persistent and embedded
(5)___________ in the society, which means that the most people do not really (6)__________ from the growth.
The second point is that income per capita may be going up, but the level of income and wealth (7)___________
inequality___ may also be rising.
Fast growth may also present a threat to the (8)___________. In many countries, the GDP may be high, but the
(9)______________ from pollution and waste endanger their sustainability. The last reason is that the growth may be
driven by high levels of (10)___________ . If the capital investment is high, there may be less resources to produce
goods and services.
Source: https://www.youtube.com/watch?v=tVh2kOgAg2E&ab_channel=tutor2u
Listening 2 BBC podcast Understand - episode Recessions
TASK 1 Lead-in
Answer the following questions:
1. How would you define an economic recession?
2. What may cause an economic recession?
TASK 2 Listening
Listen to part of the BBC podcast Understand the Economy on recessions and complete the sentences below with the
words and phrases in the box
20% 60% asset values carpenter chef confidence consecutive quarters cut back on sth
economics observatory Extreme economies go down household sector income
multiplier effect plumber procession ripple effect shrink trim sth back
1. Tim Hartford compares economic growth to a) ______.
2. Richard Davies is a director of the UK’s b)________ and he wrote a book called c)_______________.
3. The technical definition of a recession is two d)_____________ of negative growth.
4. When it comes to spending, the household sector represents e)______ and the government represents
f)_____________.
5. During a recession, something is wrong with the g)______________.
6. If an external factor hits an economy, it hits h)_________ and when people see it, they are likely to lose
i)_______________.
7. All this leads to a j)__________, which is called k)_________ by economists.
8. If an individual decides against going on holiday, the jobs of a l)_____, m)______, and n) _____ are affected.
9. One person’s spending is another person’s o)_______________.
What synonyms of “decrease” have been used in the podcast? p)________, q)_________, r)___________, and
s)_______.
Source: https://www.bbc.co.uk/programmes/m001dwr7/episodes/downloads
Listening 3 Economic indicators explained in one minute.
TASK 1 Listening
Listen to the recording and put the indicators below in the proper category:
consumer price index building permits default rates nonfarm payrolls personal income
unemployment rate interest rates share prices money supply the GDP net business formations
Key:
LEADING INDICATORS LAGGING INDICATORS COINCIDENT INDICATORS
Source: https://www.youtube.com/watch?v=XOiZGFc5N1s&t=1s&ab_channel=HistoryScope
Video activity Do tax cuts stimulate the economy?
Source: TED Ed lessons
TASK 1 Lead-in
Answer the following questions:
1. How high is the income tax in the Czech Republic?
2. What might happen if corporate taxes are too high?
2. Have you ever heard of a trickle-down theory?
4. How did the US economy do at the end of the 20th
century?
TASK 2 Vocabulary
Match the words and their definitions:
1 economic policy a) people who have high incomes and the potential to be wealthy in the future.
2 tax cuts b) a range of incomes subject to a certain income tax rate
3 high-income earners c) a tax on the profits of a corporation
4 trickle-down theory d) a wide range of measures which governments use to manage their economy.
5 median income e) changes to the tax code that reduce the amount of tax people have to pay
6 tax revenue f) the amount that divides the income distribution into two equal groups, half
having income above that amount, and half having income below
7 tax rate g) A comprehensive statement of the assets, liabilities of government
8 tax bracket h) the revenues collected from taxes on income and profits, taxes imposed on
goods and services, payroll taxes, taxes on the ownership and transfer of
property
9 corporate tax i) the percentage of an income or an amount of money that has to be paid as tax.
10 balance sheet j) a reduction in tax rates assuming that corporations and entrepreneurs would
reinvest tax savings to generate more employment opportunities
TASK 3 Video
Now watch a Ted-Ed video on Whether tax cuts stimulate the economy (until 3:35) and answer the questions below:
1. How was the US economy doing when Ronald Reagan became a president?
2. What economic policy introduced by Reagan’s administration was mentioned?
3. What was the reasoning behind the trickle-down theory?
4. How did the US economy do in the 1980s and 1990s?
5. How is the tax revenue related to high taxes?
6. How might the government profit from a lower tax rate?
7. Which tax was higher in 1981 – the income tax or the corporate tax? And which was higher in 2021?
8. What was the outcome of the tax cuts in Kansas in 2012/13?
9. What did the study by the London School o
f Economics find out about cutting tax?
10. What would the rich have to do to stimulate the economy?
Revision time:
Business cycle definitions – Quizlet
Economic development – Quizlet
Business cycle definitions – Wordwall
Development indicators definitions – Wordwall
Economic indicators categories - Wordwall
Translation of vocabulary – Learning Apps crossword
Sources:
1. https://www.thebalancemoney.com/what-is-the-business-cycle-3305912
2. https://corporatefinanceinstitute.com/resources/economics/business-cycle/
3. https://www2.gov.bc.ca/gov/content/employment-business/economic-development/plan-and-
measure/economic-development-basics
4. https://www.investopedia.com/terms/b/businesscycle.asp
5. https://en.wikipedia.org/wiki/Economic_development
6. https://wedc-knowledge.lboro.ac.uk/resources/e/mn/054-Economic-development-indicators.pdf
7. https://www.bbc.co.uk/programmes/m001dwr7/episodes/downloads
8. https://www.youtube.com/watch?v=XOiZGFc5N1s&t=1s&ab_channel=HistoryScope
9. https://www.youtube.com/watch?v=tVh2kOgAg2E&ab_channel=tutor2u
10. https://www.tutor2u.net/economics/reference/economic-cycles-supply-side-shocks
DEFINITIONS
BUSINESS CYCLE
achieve to succeed in getting something, usually after a lot of effort
at their highest reaching peak values
at their peak reaching the highest values
budget the money that is available to a person or an organization and a plan of
how it will be spent over a period of time
business cycle a cycle or series of cycles in a business or in the economy in which
economic activity increases and then decreases
contract to become less or smaller
contraction the process of becoming smaller
debt a sum of money that somebody owes
decline a continuous decrease in the number, value, quality, etc. of something; to
become smaller, fewer, weaker, etc.
decrease to become smaller in size, number; to make something smaller in size,
number; the process of reducing something
demand the desire or need of customers for goods or services that they want to
buy or use
depression a period when there is little economic activity, and many people are poor
or without jobs
economic indicators economic data that help indicate and assess the economic health of any
nation. knowing about them helps individuals and entities make more
informative and wiser investment decisions. examples – GDP growth rate,
interest rate, inflation rate, credit rating…
economy 1. a country, in terms of its economic system; 2. the relationship between
production, trade and the supply of money in a particular country
employee a person who is paid to work for somebody
employment the state of being employed; the situation in which people have work
excess supply also known as surplus, refers to a situation in which the quantity of a good
or service that is being offered for sale exceeds the quantity that is being
demanded by consumers at the current price
expansion an act of increasing or making something increase in size, amount or
importance
fall to drop down from a higher level to a lower level
fluctuation one of several changes in size, amount, quality, etc. that happen
frequently, especially from one extreme to another
funding money for a particular purpose; the act of providing money for such a
purpose
Gross Domestic
Product
the total value of all the goods and services produced by a country in one
year
growth an increase in the size, amount or degree of something
income the money that a person, a region, a country, etc. earns from work, from
investing money, from business, etc.
inflation a fall in the value of money and a general increase in prices
interest rate the amount of interest due per period, as a proportion of the amount lent,
deposited, or borrowed
investment the act of investing money in something; the money that you invest, or the
thing that you invest in
investor a person or an organization that invests money in something
lay off to stop employing somebody because there is not enough work for them
to do
notice to become aware of somebody/something
output the amount of something that a person, a machine or an organization
produces
overheating the fact of a country's economy being too active, with rising prices
overvalued to put too high a value on something
peak to reach the highest point or value; the point when somebody/something
is best, most successful, strongest
profit the money that you make in business or by selling things, especially after
paying the costs involved
prosperity the state of being successful, especially in making money
prosperous rich and successful
recession a difficult time for the economy of a country, when there is less trade and
industrial activity than usual, and more people are unemployed
reconsider to think about something again, especially because one might want to
change a previous decision
recovery the process of improving or becoming stronger again
rise verb - to come or go upwards; to reach a higher level or position; noun - an
increase in an amount, a number, or a level
saturation point the point at which there are so many of a thing that no more can be added
successfully
stock market the business of buying and selling shares in companies and the place
where this happens
supply an amount of something that is provided or available to be used
trough a period of time when a business or the economy is not growing
unemployment rate the percentage of the labour force without a job
wage a regular amount of money that you earn, usually every week or every
month
ECONOMIC DEVELOPMENT AND INDICATORS
adding putting something together with something else so as to increase the size,
number, amount, etc.
affordable housing housing that a household can pay for, while still having money left over for
other necessities like food, transportation, and health care.
annual output a quantity of goods or services produced over a year
balance of trade the difference in value between imports and exports
birth rate the number of births every year for every 1 000 people in the population
of a place
burden a duty, responsibility, etc. that causes worry, difficulty or hard work
credit an arrangement that you make, with a shop for example, to pay later for
something you buy
credit history a record of how a person has handled money and debt, including credit
card accounts and other loans
credit rating an estimate of the ability of a person or organization to fulfil their financial
commitments, based on previous dealings
creditor a person, company, etc. that somebody owes money to
creditworthiness the extent to which a person or company is considered suitable to receive
financial credit, often based on their reliability in paying money back in the
past
current assets cash and other assets that are expected to be converted to cash within a
year
current liabilities cash and other assets that are expected to be converted to cash within a
year
default on a loan to fail to pay a debt
economic
development
the process by which the economic well-being and quality of life of a
nation, region, local community, or an individual are improved according
to targeted goals and objectives
employment the state of being employed
exports products that are sold to another country
financial history information about income, employee’s finances, assets, salaries, wages,
monetary incentives, beneficiaries, insurance, benefits, financial
transactions, credit worthiness, and debts
fiscal policy the use of government spending and tax policies to influence economic
conditions
Gross Domestic
Product
the total value of all the goods and services produced by a country in one
year
Gross National
Product
the total value of all the goods and services produced by a country in one
year, including the total income from foreign countries
imports products or services that are brought into one country from another
incur if you incur costs, you have to pay them
index (pl. indices) a system that shows the level of prices and wages, etc. so that they can be
compared with those of a previous date
indicator a sign that shows you what something is like or how a situation is changing
inflation a fall in the value of money and a general increase in prices
infrastructure the basic systems and services that are necessary for a country or an
organization to run smoothly, for example buildings, transport and water
and power supplies
job creation the provision of new opportunities for paid employment, especially for
those who are unemployed
job retention an organization's ability to keep its employees
life expectancy how long, on average, a newborn can expect to live, if current death rates
do not change
literacy the ability to read and write
literacy rate the percentage of the population that can read and write
loan money that an organization such as a bank lends and somebody borrows
measure a way of judging or measuring something
monetary policy the actions taken by a central bank to manage the money supply and
interest rates in an economy
monetary value the amount that would be paid in cash for an asset or service if it were to
be sold to a third party
national debt the total amount of money which a country's government has borrowed
objective something that you are trying to achieve
per capita for each person
price stability the condition in which the domestic currency retains its purchasing power
by maintaining low and stable inflation as measured by the Consumer
Price Index over the medium term
real estate property in the form of land or buildings
regulation an official rule made by a government or some other authority
repay to pay back the money that you have borrowed from somebody
resident a person who lives in a particular place or who has their home there
small business a business that has a limited number of employees and operates
independently of larger corporations. Small businesses are typically
privately owned and operated and have a single owner or a small group of
owners
sustainable growth a rate of growth that can be maintained without creating other significant
economic problems, especially for future generations.
tax policy the guidelines and principles established by a government for the
imposition and collection of taxes
trade deficit a situation in which the value of a country’s imports is greater than the
value of its exports
trade gap a situation in which the value of a country’s imports is greater than the
value of its exports
trade surplus a situation in which the value of a country’s exports is greater than the
value of its imports
workforce all the people who work for a particular company, organization, etc.; all
the people in a country or an area who are available for work