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The output gap is a measure of the difference between actual output (Y) and potential output (Yf). Output gap = Y- Yf A Negative Output Gap occurs when actual output is less than potential output gap. In a recession, a fall in Real GDP causes a negative output gap. However, it can become difficult to …
The effective exchange rate measures the value of a currency against a basket of other currencies. This exchange rate index is usually trade-weighted to take into account the relative importance of other currencies. When looking at the effective Sterling exchange rate we compare the value of Sterling against our main trading partners – The Euro, …
The Sahm rule is a way of predicting a recession from changes in the unemployment rate. “(The) Sahm Recession Indicator signals the start of a recession when the three-month moving average of the national unemployment rate (U3) rises by 0.50 percentage points or more relative to its low during the previous 12 months.” (Sahm Rule) …
Definition of Household savings ratio: The percentage of disposable income that is saved. (1) Total savings = Disposable income – Household consumption UK Saving Ratio Latest UK household savings ratio: 2021 = 10% But, by 2021 Q4 the saving ratio had fallen to 6.2% By contrast, the average savings ratio in the past 54 years …
Recessions (a fall in real GDP) are primarily caused by a fall in aggregate demand (AD). A demand-side shock could occur due to several factors, such as A financial crisis. If banks have a shortage of liquidity, they reduce lending and this reduces investment. A rise in interest rates – increases the cost of borrowing …