SUBJECT ECONOMICS GRADE 12 DITLALEMESO SECONDARY

and
GRADE
SCHOOL
TERM 1 WEEK 4 03-07 FEBRUARY 2025
TOPIC MACROECONOMICS: BUSINESS CYCLE (Continue from Week 3)
AIMS OF YOU MUST BE ABLE TO:
LESSON Analysis and explanation of business cycles, and how they are used in forecasting.
2.4 The new economic paradigm (smoothing of cycles)
2.5 Features underpinning forecasting business cycles
Paper based Digital resources
RESOURCES

resources
WCED Core Economics Grade 12 TDBS Lesson 15 by Carden Madzokere |
Notes: The New
Mind the Gap: Economic Paradigm [Link]
pg. 30 - 34 v=yM88G4NVzQ M

Economics Grade 12 TDBS Lesson 16 by Carden Madzokere |

Economic
Indicators used for Forecasting
[Link]

Economics Grade 12 TDBS Lesson 17 by Carden Madzokere |

Length,
Amplitude, Extrapolation, Trend Line
[Link]

Economics Grade 12 TDBS Lesson 18 by Carden Madzokere |

Business Cycles
Test
[Link]
INTRODU Business cycle is linked to content covered in:
CTI Gr 10 - Term 1: Business cycles- time series and composition, phenomenon, reasons and effect. Price
ON formation Gr 11 - Term 1: Demand and supply relationships
 MONETARY POLICY uses
✓ reduce Interest rates ✓ increasing interest rates
✓ buying government bonds and ✓ selling government bonds and
securities securities
✓ decrease the cash reserve ✓ increase the cash reserve
requirements requirements
✓ persuade banks to increase ✓ persuade banks to decrease
lending (moral suasion) lending (moral suasion) 🗸🗸
✓ evaluate the exchange rate ✓ devaluate the exchange rate

FISCAL POLICY uses

✓ increase government expenditure ✓ decrease government
✓ reduce taxes expenditure
✓ increase taxes

Q2: Copy the business

cycle. Clearly indicate
which instruments will
be most appropriate
during the
a. peak
b. trough or
contraction phase

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 This relationship between unemployment and inflation is illustrated using the Q4: What is the
Phillips curve relationship between
inflation and
• PC (Phillip’s curve) is the original curve and intersect the x - axis at A unemployment.
(unemployment rate = Explain with the aid of
14%) a diagram.
• Economy is stimulated and unemployment decrease to B (10%) – wages
increase – inflation increase to
2% - unemployment decrease to
C (8%) which cause inflation to
increase to 6% - therefore the
inverse relationship between
inflation and unemployment
(trade-off)
• Supply-side measures are
used to
shift the Philip curves to the left
through better education,
effective training and less
restriction on immigration of
trained workers.
PC1 - Intersection with x-axis is
showing a lower unemployment rate
(9%) and demand is stimulated to
higher levels

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 LESSON 3 Q5: Illustrate with the
(Continue) aid
of a graph, the impact
SUPPLY-SIDE POLICIES of a change in
Governments can arrange things in the economy in a way that is cooperative to changes quantity supplied of
goods and services.
in demand.

Reduction of costs
- Greater output supplied at any given price level. AS shifts to AS1 and AD to AD1
output expands from Q to Q1 with prices stable

Improve efficiency in inputs

- Tax rates: high rates of personal income tax are disincentives and shifts AS to
the right
- Usually achieved with incentive schemes and measures such as tax rates
- Capital consumption: by replacing capital goods on a regular basis that will
create opportunities for businesses to keep up with technological development
- Human resources development where the quality of labour can be improved
by improving health care, education and training which will increase the
efficiency ofbusinesses
- Free advisory services to promote opportunities to export and establish
business activities in foreign countries which includes weather forecasts,
veterinary services and research

Improving efficiency in markets

- Deregulation where laws and regulations are removed to make markets free
- Competition is encouraged to establish new businesses, invite foreign direct
investment and remove power imbalances
- Levelling the economic playing fields because private businesses cannot compete
with public enterprises due to legislative protection

LESSO Q6: Illustrate the effect of demand-

N4

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 • Explain the effect of demand-side and supply-side policies using a side and supply side policies with
graph (aggregate demand and aggregate supply). the aid of a graph.

The effects of demand-side and

supply-side policies:

Inflation
• Aggregate demand and supply are
in equilibrium at point C
• Aggregate demand is stimulated
and moves to AD1, supply
responds and relocates at AS1
• This result in larger real output
without price increases.

Supply often sticky and fixed in

short term
• with increase in demand to AD1, supply stays constant and
intersects at point F
• Real production and prices increase (inflation) - creates conditions
where
supply is more flexible through the use of supply-side measures

Unemployment
• Demand-side policies are effective in stimulating economic growth
• It increases demand for labour, reduces unemployment, hence
inflation rises

LESSO In the previous lesson plan, we

N5 illustrated the FEATURES of the

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 business cycle. This essay is therefore
FEATURES UNDERPINNING FORECASTING WITH REGARD TO ONLY an EXPLANATION of the
BUSINESS CYCLES content dealt with in previous week.

1. Economic indicators
• Are statistics used to measure some aspect of the economy.
• Examples of indicators are GDP, unemployment rates and interest rates. Please
note:
a) Leading economic indicators: (most important type of
indicator) • Are indicators that change before the economy Lesson 5 is a possible essay question.
changes. Revise the question by making use of
the THREE M’s
• Leading indicators tend to move up or down a few months before
business cycle expansions or contractions. a. Mind maps
• They give consumers, business leaders and policy makers a hint of b. Mnemonics
where the economy might be heading. c. Mobile notes
• Examples of leading indicators: equity /commodity prices, business
Answer question 4.2 on page 12 as
confidence, job advertising space and manufacturing orders
an example of how this essay may
be assessed.
b) Lagging economic indicators:
• These economic indicators do not change direction, until after the
business cycle has changed direction.
• Examples of lagging indicators: Unemployment rates; Number of
commercial vehicles sold; Real investment in machinery and equipment.

c) Coincident economic indicators:

• These indicators move at the same time as the economy.
• Example, the value of retail sales is a coincident economic indicator.
• Examples of coincidence indicators : Industrial production index; volume
of imports; utilization of productive capacity in manufacturing.

d) Composite economic indicators

• It is a summary of the various indicators of the same type into a single
value.
• Each economic indicator i.e. leading, lagging and coincident will each
have a single value.
• I.e. a single figure can be used as norm indicating a country’s economic
performance
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2. Length of a cycle
• Is the time it takes for a business cycle to move through one complete
cycle (peak to recession to a trough, the back to a trough, a boom and to
a peak.
• Longer cycles show strength and shorter cycles weaknesses.

3. Amplitude
• Is the difference in the value of total output between peak and trough
• Shows the power of the underlying forces
- e.g. interest rates, exports or consumer spending
- A large amplitude during an upswing shows strong underlying forces.
- A cycle with a large amplitude usually lasts longer.
• The extent of change:
- The larger the amplitude, the more extreme the changes that may
occur.

4. The trend line

• The trend indicates the general direction in which the indexes in the
economy moves.
• When the economy is growing, there is an upward trend / When the
economy is decreasing there is a downward trend.
• Balance of Payment account (BOP) can change from a surplus to a
deficit.

5. Extrapolation:
• Extrapolation means to estimate something that is unknown, from facts
and information that is known.
• Extending a trend line with only one cycle length into the future may
provide information on what is likely to happen.

6. Moving averages
• A moving average is a statistical analytical tool used to analyse changes
that occur in a series of data over a period of time
• Moving averages are calculated to iron out small fluctuations and reveal
trends in the business cycle.
• E.g. the moving average for a business cycle could be calculated for the
 past three months in order to smooth out any minor fluctuations and to
indicate the trend over the past three months

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SELF-ASSESSMENT 1.4 An indication of long-term 3. Eight (8) Mark questions:
ACTIVITIES growth in the economy is referred 3. Distinguish between the
1
 to as the … A trend line. amplitude and trend line as

/ ASSESSMENT
1. Multiple Choice Questions: B amplitude. 4 features underpinning
Various options are provided as C length. . forecasting.
possible answers to the following D trough. 4.1
questions. (2 x 4) (8)
1.1 The severity of cyclical 2. Give ONE concept for
ACTIVITIES

fluctuations in business cycles each of the following Essay

are indicated by … A amplitudes. B descriptions. Discuss the use of monetary and
moving averages. C extrapolations. 2.1 Early warning of changes in 4.2 fiscal policies to influence
D trendline. economic activity demand and supply in the
2.2 The distance from the trend smoothing of business cycles.
1.2 In business cycles, estimating line to the peak and the (26 marks)
something unknown from trough
information that is known is 2.3 Shows the direction in which 5. Discuss ALL the features
called the economy might be underpinning the
… heading forecasting of business
5.1
A amplitude. 2.4 Does not change until after cycles, excluding the
B extrapolati the business cycle has economic indicators.
on.3 C trend. changed. (26
2.5 Measures the distance of the marks)
D deduction.
oscillation of a variable from
1.3 The new economic paradigm the trend line to the peak and Application questions
trough relating to Essays
that relates to the smoothing of
2.6 A summary of the value of Use a well labelled graph to
business cycles is rooted in …-
different leading indicators explain the effects
side policies. into a single value of demand-and-supply-
A demand-and- side policies on prices.
supply B only (10)
demand
C only
supply
D
fiscal

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