This week is the week that attention ought to be focused on the wider economy. Data on economic growth in the third quarter of 2008 is widely expected to indicate that the UK economy is entering recession. Last month the British Chamber of Commerce nailed its colours to the mast and announced that a survey of its members showed output falling. This morning the Ernst and Young Item Club, who use the same forecasting model as the Treasury, have declared that the economy is already in recession. So, watch this space - after you have watched this video clip from the BBC. There will be no prizes if official data confirms what most economists, businesses and the increasing number of unemployed already know.Fresh from devising bank rescue plans, Alistair Darling (Chancellor of the Exchequer) has announced that key government expenditure plans will be brought forward in an attempt to inject extra spending into the economy. The implications for government borrowing will be significant, not least because they come at a time of record borrowing by the government - see this article on the BBC website.
Quick questions for Year 10 economics and business students (post your answers as a comment to this blog) - commendations for all those with a correct set of answers!
1. What is the official definition of a recession?
2. What is the name for the use of government expenditure and taxation to regulate the econmic cycle?
3. What are the four stages of the economic cycle?
Longer question for sixth form economists (post your asnwer as a comment to this blog)
1. What are the drawbacks of using government expenditure and taxation to regulate the economic cycle?
6 comments:
1.
A stage of the business cycle in which economic activity is in slow decline. Recession usually follows a boom, and precedes a depression. It is characterized by rising unemployment and falling levels of output and investment.
2.
Macroeconomics
3.
http://tutor2u.net/economics/content/topics/econgrowth/cycles.htm
Stages of the Economic Cycle
1) Economic Boom
A boom occurs when national output is increasing strongly at a rate faster than the trend rate of growth of about 2.5% per year. In boom conditions, output and employment are both expanding and the level of aggregate demand for goods and services is very high. Typically, businesses use the opportunity of a boom to increase output and also widen their profit margins.
2) Economic Slowdown
A slowdown occurs when the rate of growth decelerates - but national output is still rising. If the economy continues to expand without falling into outright recession, this is known as a soft-landing.
3) Economic Recession
A recession means a fall in the level of real national output (i.e. a period when the rate of economic growth is negative). National output declines, leading to a contraction in employment, incomes and profits.
4) Economic Recovery
A recovery happens when real national output picks up from the trough reached at the low point of the recession. The pace of recovery depends in part on how quickly aggregate demand starts to increase after the economic downturn. And, the extent to which producers raise output and rebuild their stock levels in anticipation of a rise in demand.
Thanks, Jack Meister - 2 out of 3! Try to put things in your own words (though if you don't, acknowledge your sources like Jack).
Commendations still on offer for all three correct ...
Here is Will Goulbourne's answers (still only 2 / 3). Commendation at this stage goes to whoever can provide the correct response to question 2.
1. a recession is a period of economic decline shown by high unemployment, stagnant wages and low retail sales. it usually does not last longer than one year.
2. The name for the use of government expenditure and taxation regulation in the economic cycle is the Gross Domestic Product.
3. The four stages of the economic cycle are:the recession then the recovery then the boom and finally the slow down. Then it will repeat.
William Goulbourne
1.A recession is a period when the rate of economic growth is negative. It is when there is a decline in economic activity in at least two consecutive quarters. A recession usually follows a boom, and precedes a depression.
2.Fiscal Policy is the name for the use of government expenditure and taxation to regulate the economic cycle.
3.The four stages of the economic cycle are: economic boom, economic slowdown, economic rescission, and economic recovery.
*1.* A recession is a period when a country’s economy is less successful and more people become unemployed. Some economists define a recession as two consecutive quarters (three-month financial periods in the year) in which the gross domestic product decreases, others say it is 3 quarters.
*2.* The Budget is the annual statement made by the Chancellor in which taxation and government spending for the following year is announced.
*3.* Economic expansion (boom) is when GDP has started to grow strongly. At this time, as companies are doing well, they will invest more and more funds into assets such as machinery, computers and other capital goods.
Economic Slowdown once consumers are short of money, economic growth will slow down as they spend less and less. In economic slowdown, the central bank generally lowers interest rate to give people more money in their pockets and so encourage them to spend.
Recession is the dreaded part of an economic cycle. With weaker demand and higher unemployment, consumers will limit their spending on luxuries such as buying a house or a car. Instead, they focus on their money and on more important things such as food.
Economic Recovery when the gross domestic product (GDP) of an economy has reached a bottom and is starting to move up. Since most economies are driven by consumer demand, this is where the bulk of economic growth comes from.
The GDP is the value of all goods and services produced in a country.
Thanks to everyone who has contributed to this post and well done on the research you have engaged in.
The winner is ... Miriam
Fiscal policy is the name for policies related to government expenditure and taxation. She might have added that using this policy to regulate the cycle is known as 'counter-cyclical' or 'discretionary' or 'expnasionary / contractionary' fiscal policy, but what the heck she is the closest so far.
Commendation on its way to you Miriam.
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