Economic Cycles 1: Definition and Stages
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The document discusses economic cycles and their stages. Economic cycles trace the movement of the economy through regular phases of boom, downturn, slump, and recovery. During a boom, the economy experiences high growth and inflation, low unemployment, and a trade deficit. A downturn follows as growth and inflation fall. During a slump, the economy contracts with high unemployment and a trade surplus. In recovery, the economy expands again with rising growth, inflation, and a trade deficit.
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The Great Recession of 2008-2009 was the worst economic downturn since the 1930s. While officially over, the recovery has been unusually weak with slow GDP and job growth. This recession was caused by the financial crisis and housing market collapse, and different in requiring massive consumer and government debt reduction. Persistent budget deficits could increase interest rates and inflation. Learning professionals should closely align learning with strategic priorities, build strong business cases, and create a flexible cost structure to weather ongoing economic uncertainty.
MY RESEARCH ARTICLE FINAL
The document discusses the impact of the 2008 global financial crisis on the Indian economy. It notes that while India had little direct exposure to subprime assets, it was still impacted due to increasing globalization and financial integration. Several sectors of the Indian economy experienced slowdowns, including declines in exports, manufacturing, and job losses. The government implemented fiscal stimulus measures that helped arrest the fall in GDP growth, but growth still declined from 9% pre-crisis to 6.7% in 2008-09. Foreign investment and capital flows into India also decreased sharply during this period.
A Global Economic & Market Outlook
- The document provides an economic and market outlook from Dr. Chris Caton in December 2015. It summarizes forecasts for GDP growth and inflation in countries around the world, including Australia, China, the US, and others. It also examines topics like the Australian dollar, house prices, share markets, employment, inflation, and monetary policy. The conclusion reiterates that moderate economic growth is expected in Australia, with the mining investment boom having ended and no significant pickup in non-mining investment yet.
How well will the Euro Area do?
This document discusses the economic outlook for the Euro Area in 2018 and analyzes key issues:
1. Economic activity is expected to remain strong but structural reforms are needed to boost potential growth rates.
2. Inflation is forecast to remain below target over the next few years despite a closed output gap. The Phillips curve relationship between inflation and unemployment seems stable.
3. Monetary policy accommodation may still be needed given inflation outlook and signs of residual financial market fragmentation, though private and public debt levels pose risks to financial stability in some countries like France. Coordinated fiscal and structural reforms could help sustain the expansion without overburdening monetary policy.
How well will the €A do? M-O Strauss-Kahn, London Feb 2 2018
How well will the Euro Area do? Slides from Marc-Olivier Strauss-Kahn, MNI Connect Policymaker Luncheon, London, Febraury 2 2018
Australia's Macroeconomic Objectives
1. Australia's macroeconomic objectives include steady and sustainable economic growth, price stability with low inflation, full employment, equitable income distribution, and efficient use of resources.
2. Achieving these objectives can be difficult due to conflicting objectives, information gaps, time lags in policy, political factors like election cycles, and external shocks beyond the government's control.
3. The document discusses tensions between objectives in both the short and long-run, such as between growth and inflation, and analyzes different views on how economies adjust over time.
Advance G20 release of OECD Economic Outlook
The global economy is growing slowly with diverging growth rates between countries. Financial risks are increasing and volatility is likely to rise. Potential growth has declined as weak demand interacts with slowing growth rates. The euro area economy remains weak, a major concern. Coordinated monetary, fiscal and structural policies will need to be deployed to mitigate risks and boost growth.
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Economic Cycles 3: Economic models
The document discusses economic cycles and models used to explain them. It states that cycles are movements in aggregate demand around a longer-term trend line determined by aggregate supply. Cycles are explained by the components of aggregate demand: consumption, investment, government spending, and net exports. The stage of the economic cycle is indicated on diagrams by the actual size and change in size of the output gap between actual and potential GDP. Keynesian models of the aggregate expenditure line and aggregate demand/aggregate supply are presented as ways to illustrate different stages of the economic cycle like booms, recessions, recoveries, and downturns. The models are evaluated as only approximations and the real world is more complex.
Keynesian Multiplier Process
The Keynesian multiplier process describes how an initial autonomous change in spending has a multiplied impact on total income and spending in the economy through successive rounds of induced spending. When people receive more income from the initial spending injection, they in turn spend a portion of that additional income, which becomes someone else's income and so on. However, at each stage some spending leaks out through savings, taxes and imports. The multiplier effect ends when total induced leakages have offset the original autonomous spending change. The size of the multiplier depends on factors like the marginal propensity to consume.
Keynesian Cross Income Expenditure Model
This document presents the Keynesian aggregate expenditure model. It explains that aggregate expenditure (AE) is made up of consumption (C), planned investment (I), government spending (G), and net exports (X-M). It describes the factors that influence each component of AE and how equilibrium occurs when AE equals real output/income (Y). It shows that disequilibrium can result if AE is greater or less than Y, causing inflationary or deflationary gaps, and how the economy adjusts back towards equilibrium through changes in output and income.
Monetary Policy in Australia 2: Interest Rates
This document discusses how interest rates are determined and how monetary policy affects interest rates. It can be summarized as:
1) Interest rates are determined by the supply and demand of savings and borrowing in the economy. The central bank sets a target cash rate which influences other interest rates.
2) When the central bank raises the cash rate, it causes short-term market interest rates to rise. This leads bond prices to fall and long-term interest rates to also increase as bond yields rise.
3) Changes in interest rates spread throughout the economy as higher rates make borrowing more expensive and saving more attractive, which over time impacts aggregate demand and inflation.
Structural Change in Australia
Structural change involves shifts in the composition and location of production and employment over time as an economy adjusts to changes in demand. In Australia, this has resulted in declining shares of agriculture, manufacturing, and mining in output and employment, while the services sector has grown significantly. The mining investment boom caused a temporary "two-speed" economy before Australia returned to a more balanced multi-speed economy as mining investment declined but was offset by growth in other areas like household spending, construction, and exports. Structural change stems from various domestic and international factors related to both markets and government policies.
Productivity in Australia
Productivity is measured as output per unit of input. It can be measured for individual businesses but is harder to measure for the whole economy. Productivity growth leads to economic growth, price stability, full employment, and more efficient use of resources. It allows countries to produce more goods and services from the same inputs. Sustained productivity growth depends on competitive markets, investment in infrastructure and education, innovation, and effective economic policies. Barriers include lack of reforms, over-regulation, and inadequate infrastructure.
Effectiveness of Fiscal Policy
1. The document discusses five potential problems with the effectiveness of fiscal policy: crowding out, time lags, politicians' expansionary bias, the legacy of debt, and not allowing the economy to self-adjust.
2. It specifically examines crowding out in more detail, outlining the three types of crowding out - resource, financial, and exchange rate crowding out - and provides diagrams to illustrate financial crowding out.
3. It also notes some evaluations of crowding out and the possibility of crowding-in through tight fiscal policy.
Australia's Economic Performance
The document discusses the key objectives and indicators for assessing the performance of the Australian economy. It outlines several broad economic goals: economic growth, low unemployment, low inflation/price stability, equitable income distribution, and environmental sustainability. Specific indicators discussed include GDP growth rates, unemployment levels, inflation rates, the current account balance, exchange rates, foreign liabilities, and terms of trade. The document also notes some policy options like fiscal and monetary tools that can be used to influence economic performance if it is not meeting objectives.
Aggregate Demand and Aggrgate Supply Model
1. The document discusses the aggregate demand and aggregate supply model used in macroeconomics to analyze the relationship between inflation, growth, and unemployment.
2. It explains the Keynesian and neoclassical versions of the AD/AS model, how aggregate demand and supply curves are determined, and how shifts in these curves impact macroeconomic variables.
3. The document provides examples of factors that can cause aggregate demand and supply to shift, and analyzes the macroeconomic effects of these shifts according to the AD/AS framework.
Australia's Foreign Liabilities 2: Advantages and Disadvantages
This document discusses the advantages and disadvantages of foreign liabilities for countries. It notes that foreign investment can help close investment-savings gaps, fund new projects that create jobs, and bring in new technologies. However, it also leads to income outflows and makes economies vulnerable to external shocks. While debt provides funds without loss of ownership, it must be paid back which can create debt sustainability issues. Equity investment does not require repayment but results in loss of control. Both foreign debt and equity investment have risks but can also benefit economies if managed appropriately.
Australia's Foreign Liabilities 1: Concepts and relationships
This document discusses foreign liabilities in Australia, including foreign debt and equity. It defines key terms like stocks, flows, gross and net foreign liabilities. Foreign debt in Australia is mainly held by the private sector, especially banks that lend to businesses. While Australia's foreign liabilities are high compared to GDP, they are manageable by international standards with a net foreign debt to GDP ratio around 55%. The levels of foreign investment reflect Australia's ongoing investment-savings gap.
Australian Dollar: Value of the Exchange Rate
The value of the Australian dollar is determined by foreign exchange markets and the relative demand and supply of the currency. Demand is created by financial inflows in the balance of payments, while supply is created by financial outflows. Foreign investment flows are therefore crucial in determining the value of the Australian dollar.
The document outlines several factors that influence the short, medium, and long-term value of the Australian dollar. In the short-term (days), speculation drives currency movements. In the medium-term (months), key factors include interest rate differentials, commodity prices and exports, terms of trade, risk environment, and Australia's economic performance. Long-term (years) movements reflect relative inflation rates and purchasing power parity
Balance of Payments Accounts
The balance of payments records financial flows between Australia and the rest of the world. It includes trade payments, income flows, and foreign investment. It has two main accounts - the current account covering trade and income, and the capital and financial account covering investment. Australia typically runs a current account deficit and capital account surplus. The current account deficit reflects both weaknesses in the Australian economy, but also strengths like the need for foreign capital for investment.
Gains from trade: Consumer and Producer Surplus
This document discusses the gains from international trade using consumer and producer surplus models. It explains that static gains from trade occur as countries are able to use their resources more efficiently. When a country exports a good, producers gain from selling at a higher world price while consumers may lose from paying higher domestic prices. However, the overall community surplus increases. When a country imports a good, consumers gain from lower prices while domestic producers may lose sales. But again, the overall community surplus rises due to cheaper imports. Trade allows both exporting and importing countries to experience net benefits overall.
Dynamic Gains from Trade
The document discusses the dynamic gains from international trade. These include increased competition leading to lower prices, greater product variety and consumer choice, economies of scale allowing lower production costs, learning economies as producers gain expertise, improved international relations and a "peace dividend", and reduced administrative costs and time at borders.
Globalisation
The document defines global integration as the process of economically integrating national economies. It reduces the significance of national borders and increases interdependence between countries. Aspects of global integration include international trade, foreign direct investment, global capital markets, convertible currencies, migration, and transmission of ideas, culture and technologies through communication. The scope of global integration involves trade, investment, finance, movement of people, and flow of technologies and culture across borders.
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Economic Cycles 1: Definition and Stages
- 1. Economic Cycles - Part 1 Definition and stages WACE Economics Unit 4 Video 9.1
- 2. (c) Andrew Tibbitt 2017 Slide 2 The term ‘economic cycle’ is used to describe the short term movements of the economy about its trend path. Economic Cycles trace the movement of the economy through a regular sequence of phases or stages. Definition
- 3. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Dec-2011 Mar-2012 Jun-2012 Sep-2012 Dec-2012 Mar-2013 Jun-2013 Sep-2013 Dec-2013 Mar-2014 Jun-2014 Sep-2014 Dec-2014 Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun-2016 Sep-2016 Dec_2016 Mar-2017 Jun-2017 (c) Andrew Tibbitt 2017 Slide 3 Growth in the economy is unstable and its quarter by quarter movements appear to be unpredictable. ST TREND GROWTH RATE ACTUAL GROWTH RATE
- 4. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Dec-2011 Mar-2012 Jun-2012 Sep-2012 Dec-2012 Mar-2013 Jun-2013 Sep-2013 Dec-2013 Mar-2014 Jun-2014 Sep-2014 Dec-2014 Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun-2016 Sep-2016 Dec_2016 Mar-2017 Jun-2017 (c) Andrew Tibbitt 2017 Slide 4 A model simplifies things and hopefully makes analysis easier. LT TREND GROWTH RATE CEILING - POTENTIAL GROWTH RATE FLOOR GROWTH RATE
- 5. 0.0 1.0 2.0 3.0 4.0 5.0 6.0 Mar-2007 Jun-2007 Sep-2007 Dec-2007 Mar-2008 Jun-2008 Sep-2008 Dec-2008 Mar-2009 Jun-2009 Sep-2009 Dec-2009 Mar-2010 Jun-2010 Sep-2010 Dec-2010 Mar-2011 Jun-2011 Sep-2011 Dec-2011 Mar-2012 Jun-2012 Sep-2012 Dec-2012 Mar-2013 Jun-2013 Sep-2013 Dec-2013 Mar-2014 Jun-2014 Sep-2014 Dec-2014 Mar-2015 Jun-2015 Sep-2015 Dec-2015 Mar-2016 Jun-2016 Sep-2016 Dec_2016 Mar-2017 Jun-2017 (c) Andrew Tibbitt 2017 Slide 5 The model suggests the economy passes through a sequence of stages or phases BOOM DOWNTURN SLUMP RECOVERY
- 6. (c) Andrew Tibbitt 2017 Slide 6 What happens at each stage? Macroeconomic objectives Boom Downturn Recession Recovery Growth Inflation Unemployment Income distribution Current Account Exchange Rate Foreign liabilities
- 7. (c) Andrew Tibbitt 2017 Slide 7 What happens at each stage? Macroeconomic objectives Boom Downturn Recession Recovery Growth High Falling Low Rising Inflation High Falling Low Rising Unemployment Low Rising High Falling Income distribution ? ? ? ? Current Account High CAD Falling CAD Low CAD Rising CAD Exchange Rate ? ? ? ? Foreign liabilities Rising Stable Stable Rising
- 8. (c) Andrew Tibbitt 2017 Slide 8 What happens at each stage? Components of aggregate demand Boom Downturn Recession Recovery Survival consumption Induced consumption Planned investment Government welfare Other government Exports Imports
- 9. (c) Andrew Tibbitt 2017 Slide 9 What happens at each stage? Components of aggregate demand Boom Downturn Recession Recovery Survival consumption Steady Steady Steady Steady Induced consumption High Falling Low Rising Planned investment High Falling Low Rising Government welfare Low Rising High Falling Other government Steady Steady Steady Steady Exports ? ? ? ? Imports High Falling Low Rising
- 10. (c) Andrew Tibbitt 2017 Slide 10 What happens at each stage? Policy measures Boom Downturn Recession Recovery Budget balance Interest Rates
- 11. (c) Andrew Tibbitt 2017 Slide 11 What happens at each stage? Policy measures Boom Downturn Recession Recovery Budget balance Surplus Reduces Deficit Improves Interest Rates High Falling Low Rising
- 12. (c) Andrew Tibbitt 2017 Slide 12 What happens at each stage? Aspects of economic models Boom Downturn Recession Recovery Potential GDP growth Actual GDP growth GDP gap
- 13. (c) Andrew Tibbitt 2017 Slide 13 What happens at each stage? Aspects of economic models Boom Downturn Recession Recovery Potential GDP growth Steady Steady Steady Steady Actual GDP growth High Slow Low Rising GDP gap Small Rising Big Reducing
- 14. (c) Andrew Tibbitt 2017 Slide 14 What happens at each stage? Other indicators Boom Downturn Recession Recovery Cranes on skyline Empty shops Bankruptcies Concrete production
- 15. (c) Andrew Tibbitt 2017 Slide 15 What happens at each stage? Other indicators Boom Downturn Recession Recovery Cranes on skyline Many Fewer Few More Empty shops Few More Many Fewer Bankruptcies Few More Many Fewer Concrete production High Falling Low Rising
- 16. End of part 1 (c) Andrew Tibbitt 2017 Slide 16
Editor's Notes
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