Economic Growth

Recession: This is when the economy is experiencing negative rates of growth. The formal definition is that two consecutive quarters (three month periods) of negative growth need to occur for the economy to be deemed "in recession".

Recovery: This is also known as the "expansionary phase".  After a period of recession, the economy will eventually recover. During this phase, we can expect to see the rate of economic growth increase.

Boom: At this time the rate of economic growth will be very high. When this happens, it is unlikely that the rate of growth will be able to be sustained into the future. In this case, we can expect the government to intervene to try and slow the increase in GDP.

Downturn: Many economists refer to this as the "contractionary phase".  After a boom the economy will eventually start to slow once again. At this time the rate of growth will still be positive, but it will not be as high as it was in a boom.

In general, the business cycle will last between seven and ten years. As a result, the Australian economy experienced recessions in 1974/5, and then again in 1982/3. The most recent recession was in 1990/1. In the years since the early 1990s, economic growth in Australia has been positive every year, although significant pressure developed in 2008. This is reflected in the graph below.

There are a number of factors which have contributed to this extraordinary run of economic growth. Before we examine some of them in detail, you should know that the rate of growth is affected by both supply and demand side factors. When we see an increase in either aggregate supply or aggregate demand, it is likely that the rate of economic growth will increase.

Based on this information, economists use factors that they can measure to try and predict what the rate of economic growth might be in the near future. Very soon, you will be able to do that too.