An interesting graph showing relationship between the output gap and levels of government borrowing. A negative output gap indicates GDP is below full capacity and there is unemployed resources. Therefore, in a deep recession, like 2009, the output gap will rise. In a boom, we will have a positive output gap as firms struggle to …
The Chancellor used the Budget speech to cut his growth forecasts. The economy is now expected to contract by 3.5pc this year, but grow 1.25pc in 2010. This would mean growth starting towards the end of this year. The IMF are more pessimistic forecasting negative growth in 2010 of -0.4% (see – slow economic recovery) …
The G20 summit held in London is occuring against a backdrop of the worst global downturn since the Great Depression. The OECD warned that GDP for its 30 member countries is likely to fall by a record 4.3 per cent this year, against the 0.4 per cent drop that it forecast last November. The group …
Readers Question: what are the causes of recession in india now a days? India is not in a recession. What is happening is that the growth rate is slowing down from 7% a year to an estimated 5.5% to 6.5% (link) India’s economy has been slowing down because: Fall in exports to US, Europe and …
Readers Question: Explain why Keynesians would argue that demand management policies are the most effective way of increasing the equilibrium level of output. Keynesian fiscal stimulus is a decision by the government to increase government spending financed by government borrowing. Keynes advocated fiscal stimulus when the economy was stuck in a recession. In this situation, …
This graph shows how much interest rates have fallen in the UK. The Bank of England base rate is the main ‘official interest rate’ The 3 month libor rate is the rate at which banks lend to each other. It is important for determining interest rates set by the commercial banks. Interest Rates are likely …
The Spanish economy is facing many difficult challenges. Housing Boom and Bust. Despite a relatively prudent banking sector, Spain experienced a real boom in the housing market. This was partly caused by foreign demand for holiday homes. House prices rose and there was also a boom in construction. Construction accounted for a large part of …
Readers Question: Greece has a current account deficit of almost 14% (!) of GDP and Greece is a member of the EU. How can it resolve the problem if it cannot devalue the currency ( the quick way out, which was used in the past when the greek drachma was around) and when productivity is …