Question

In what ways are economic cycles (boom and bust) likely to affect household and state budgets?

Answer 1

Boom Cycle:

State Budget:

There is high economic growth. Gross Domestic Product growth is healthy.

There will be wage growth and low unemployment. Government tax revenues will be rising.

Household budget:

There will be higher inflation. Housing prices will rise. Stock market return will be higher due to bull phase.

Bust Cycle:

State Budget:

There is low economic growth. Gross Domestic Product growth is low.

There will be high unemployment. Government tax revenues will be falling.

Household budget:

There will be low inflation. Stock market is likely to crash followed by bear phase. Value of investments will fall.