Section 2 Flashcards
what are the key socio-economic trends in the UK and explain their effects
Aging population
Pressure on government provision of:
• Healthcare
• Pensions
Growth in debt to GDP ratio due to government spending
• Currently in violation of EU upper limits
Climate change
• Trend towards lower carbon emissions
What are key Economic Indicators in the US
- Average weekly hours of production workers
- Claims for unemployment insurance
- New orders in manufacturing
- Private housing permits
- Yield curve slope shifts
- Money supply
- Consumer sentiment
- Personal income
- Data releases e.g. non-farm employment (payroll)
- . Stock market price index
What are long term socio-economic trends globally?
- UN –> climate change and sustainable development for poorer nations.
UN follows an integrated approach with low-carbon, high-growth transformation of the global economy. Envisioning this will lead to environmental stability, strong growth and economic diversification.
In terms of economic indicators what is a leading indicator?
usually signals movement in advance of the wider economy and can be useful for economic prediction. For example, stock market trends occur before movements in the real economy.
Other leading indicators are consumers or business surveys, and money supply and credit growth.
What leading indicator is published in the US?
The conference board publishes a composite leading indicator based on ten indicators to predict economic activity six to nine months ahead.
In terms of economic indicators what is a lagged indicator?
usually change after the overall economy changes e.g. employment may move three or four quarters after output changes
In terms of economic indicators what is a coincident indicator?
move in step with the wider economy and include activity variables such as industrial production and national output (GDP). These can be useful in identifying peaks and trough in business cycles after the event, and they are subject to (often substantial) revisions over time
what % of global GDP does America contribute?
24.5%
what % of global GDP does the EU contribute?
16.5%
what % of global GDP does the UK contribute?
3.3%
what % of global GDP does the emerging and developing (as IMF defined) contribute?
60% (includes china, india, russia)
talk about differences in investments and savings for emerging and developing vs developed countries
Emerging and developing countries appear to save and invest more proportionately than developed ones.
Developed economies (generally) have higher consumption levels and lower savings rates.
How much is US saving compared to investing of GDP
• US saved 18% and invested 19.6% of GDP
How much is EU saving compared to investing of GDP
• EU 24.4% and 20.9% respectively
How much is Emerging countries saving compared to investing of GDP
• Emerging economies saved 41% and invested 40% of GDP
how can a countries depth of the financial sector also (preferably) be measured compared to savings and investment as a % of GDP?
domestic credit made available to the private sector as a % of GDP
countries with less developed financial sectors have low numbers.
how many phases does a typical business cycle have? and list these
4
1) expansionary
2) euphoric
3) recession
4) recovery
describe the expansionary phase
production rises
inflation and interest rates are low
describe the euphoric phase
leads to overconfidence and gives way to falling stock prices and rising interest rates and bankruptcies
describe the recession phase
output and inventories are cut back
describe the recovery phase
consumers regain confidence
demand and output rises
what are economy wide fluctuations in economic activity observed via?
- GDP/Income/Employment/Industrial production
* Boom and contraction
Discuss length of economic cycles
- Business cycles are generally accepted to last three to live years
- There are many economic cyclical theories of varying length e.g. Kondratiev’s 60 year technological cycle
What are causes of economic and financial cycles according to what base of ideas?
• Keynesian ideas suggest
o Fluctuations in demand
o The cycle of net credit creation suggests easy credit leads to speculative bubbles
What is the basis of the circular flow theory?
That at a basic level (ignoring government and foreign sector) an economy can be thought of as households (workers/consumers) who supply inputs to firms, receive rewards in terms of wages and interest and spend those rewards on the outputs of firms.
The firms in turn use the inputs to produce outputs that the households can buy.
two main agents in the circular flow of income: what firms pay ultimately comes back to them
what does the nature of circular flow suggest in terms of how overall activity in an economic system can be measured? and what is this referred to as?
- the value of expenditure by firms on inputs
- the value of outputs by firms
- the value of purchases by consumers
In a simplified example these will yield identical results. Even when relaxing any restrictive assumptions this will hold true
National income accounting
what is a basic measure of an economy’s output in any period?
GDP
What is GDP?
the value of output produced by factors of production located within the domestic economy.
E.g. in the UK factors of production owned outside the UK e.g. foreign factory do not contribute to the UK’s GDP
What is GNP?
GDP + net income from abroad (factors of production located outside the UK and foreign ownership of UK factors)
what are final goods?
goods purchased by the ultimate user
what are intermediate goods?
goods which are inputs in another production process
What is nominal GDP?
GDP at current prices
what is real GDP
GDP adjusted for changes in price levels over time i.e. removing the effect of inflation
what is national income?
the total amount of money earned within a country.
What does national income accounting measure?
National income accounting is a way to measure GDP (Y) – income measure
What are leakages to circular flow theory?
o Leakages: Savings, tax, imports
What are injections to circular flow theory?
o Injections: investment, government spending, exports
