Readers Question: What’s the relationship between a countries economy and it’s stock market? Is it always true that the stock market reflects a country’s economic conditions? Generally speaking, the stock market will reflect the economic conditions of an economy. If an economy is growing then output will be increasing and most firms should be experiencing …
A look at how a Central Bank may act as lender of last resort to commercial banks and the government. A lender of last resort means if banks or the government are short of funds, the Central Bank will step into prevent illiquidity. This helps to maintain confidence in the banking sector. Lender of last …
Summary Real business cycle models state that macroeconomic fluctuations in the economy can be largely explained by technological shocks and changes in productivity. These changes in technological growth affect the decisions of firms on investment and workers (labour supply). Hence changes in output can be traced to microeconomic and supply-side factors. Real business cycle models …
There was a global recession in 1974, 1980-81, 1991-92 and 2007. Readers Question: In this period of recession, is gold a safe investment? Gold is traditionally seen as a safe investment, especially during a time of financial uncertainty, high inflation, depreciating exchange rates and economic recession. The main reason is that gold has an intrinsic …
A trade war involves the imposition of tariffs between trading partners. This will almost certainly cause a fall in economic welfare for all the countries who experience higher tariffs and a fall in trade. However, this fall in economic welfare is not the same as a recession (a fall in GDP). In some circumstances, a …
The essential element of Keynesian economics is the idea the macroeconomy can be in disequilibrium (recession) for a considerable time. To help recover from a recession, Keynesian economics advocates higher government spending (financed by government borrowing) to kickstart an economy in a slump. Keynesian economics includes Disequilibrium in macroeconomy (insufficient demand) Imperfect labour markets (e.g. …
Boom and bust economic cycles involve: Rapid economic growth and inflation (a boom), followed by: A period of economic contraction / recession (falling GDP, rising unemployment) Causes of boom and bust cycles 1. Loose Monetary Policy If monetary policy is too loose, it means real interest rates are too low given the state of the …
Outline some of the problems the economy might face in recovering from a period of recession. To recover from a recession there needs to be either a rise in AD or a readjustment in prices and wages. An increase in aggregate demand will increase GDP and help the economy recover from recession. Low Consumer …