Economic Cycles refer to the changes in consumer and business spending over time.
economic_cycle.jpg

A boom occurs when the economy is experiencing high level of economic growth.
A bust occurs when the economy is slow and negative economic growth.
When the economy is moving toward a boom, we call this an upswing (upturn). When the economy is moving toward a recession, we call this a downswing (downturn).


The economy moves in cycles as there are many interrelated variables that when changed will have an effect upon other vairable. These relationships are known as cause and effect.

Excessive fluctuations in economic activity make our economy unstable. This uncertainty can reduce the long term potential growth of our economy. Therefore, our government attempts to minimise fluctuations through economic factors over which it has control. These include:
Fiscal
  • Policy
  • Monetary Policy
  • Microeconomic reform

Fiscal policy is the government's attempt to stabilise the economy through revenue and expenditure.

Remember this formula:

Suplus/Deficit = Revenue (taxes) - Expenditure

The 2006/07 Fiscal Budget planned for a $10.8billion surplus, the Government's 9th surplus.

Monetary policy is the Reserve Bank's attempt to reduce excessive fluctuations in economic activity by altering the supply of cash in the money market. The reserve bank changes the cash rate (the cost of borrowing) to stimulate or contract economic activity.

Microeconomic reform refers to Government policies aimed at controlling competition which results in greater choice for consumers and lower prices.

All levels of Government will have an influence on business operations. Local governments set regulations relating to zoning requirements (ie where you can operate your business), building and construction and health and safety. They also offer support for business to assist them to succeed. An example of this is the business entry point.

State and Federal governments also set regulations and laws for business operation, such as workplace legislation. The federal government establish international treaties and trade agreements which businesses must enforce when they export or import their goods and services.

Regulatory bodies operate to enforce regulations set by the state and federal government.

Have a go at completing the table below to identify the regulatory body and their role.

Acronym
Body Name
Role of the regulatory body
EPA


ATO


ASIC


ACCC


NSW Office of Fair Trading