Warnings of hysteresis for the EU economy

Thursday, July 02, 2009
Print RSS Tweet This! Save this entry to my Favorites

The recession and financial crisis may lead to a permanent loss in potential economic output and a slower trend rate of growth in the future according to a new study by the European Commission. The fall in potential GDP will be an example of hysteresis effects across the European economy and the cyclical downturn in output and jobs creates long term damage.

At the heart of the hysteresis argument is that the economic slump will lead to

*A steep rise in business failures
*A rise in structural unemployment together with a sizeable number of people leaving the labour market permanently
*Sharp falls in capital investment
*Lower research and development with consequences for innovation
*A freeze on finance available for new business start-ups
*A squeeze on government spending as governments must take steps to reduce their borrowing and debts

“Empirical evidence of the effect of past crises shows… that the economy will not return to its pre-crisis expansion path but will shift to a lower one. In other words, the crisis will entail a permanent loss in the level of potential output.”

For students - how would you illustrate this quote using an economic cycle diagram?

Longer term demographic pressures will add to worries about the potential for economic growth - the welfare state of Europe’s member nations must grapple with the issues arising from rising life expectancy, low fertility rates and a shrinking working-age population.

Rate this article:   

Print RSS Tweet This!


ECONOMICS TEACHER RESOURCE NEWSLETTER

Join over 4,000 other Economics Teachers in the UK and around the world who receive the tutor2u Economics Resource Email newsletter. Get special offers, first news of latest resources, teaching ideas, conferences and workshops.

*  Your Email Address:
*  Preferred Format:
    AS/A2 Economics Board:
    GCSE Economics Board:
*  Country:
    Full Name:
    Job / Position:
    Postcode:
    School / College:
    Town / City:
*  Enter the security code shown:



Recent Threads on the Economics Teacher Discussion Forums:
Posts in: General Economics Teaching

Video Case-study - lunchtime prices slashed
Long Exam Example to Use for Revision Please?
Good hotel in London for school trip
Competitive Markets
Diminishing Returns
Complementary goods - HELP Please!
URgent Help Needed
Equilibrium concept
The price of life
Extended Project Qualification





Comments

Name:

Email:

Location:

URL:

Smileys

Remember my personal information

Notify me of follow-up comments?

Submit the word you see below:


Most Popular Topic Tags on the Economics Blog

recession, demand, economics, price, unemployment, prices, inflation, investment, costs, profit, downturn, supply, trade, debt, employment, confidence, euro, gdp, competition, capacity, risk, production, china, oil, incentives, exports, expectations, housing, pay, manufacturing, sterling, food, profits, property, mortgage, tutor2u, globalisation, banks, revision, slowdown, borrowing, usa, retailers, emissions, deflation, airlines, innovation, dollar, supermarkets, entrepreneur, efficiency, monopsony, elasticity, aqa, welfare, consumption, economist, productivity, saving, google, keynes, opec, wealth, depression, moodle, depreciation, jobs, credit crunch, competitiveness, economic cycle, cars, externalities, stocks, infrastructure, environmental, strategy, tim harford, carbon, vle, monopoly, subsidy, evaluation, management, eu, losses, protectionism, spare capacity, inequality, environment, poverty, bank of england, budget deficit, construction, behavioural, wages, macroeconomics, carbon trading, steel, commodities, output gap, skills, japan, oligopoly, currencies, imports, bbc, stagflation, contestable, cpi, agflation, farming, newsnight, choices, regulation, survey, taxes, government failure, itunes, minimum wage, lse, climate change, paul mason, population, intervention, keynes society, aviation, amazon, fiscal stimulus, single market, pricing, dan ariely, nationalisation, cartel, pollution, eton college, interest rates, shareholder, london, rationality, redundancies, market failure, rpi, mpc, shipping, behavioural economics, germany, robert peston, india, rsa, reputation, currency, quantitative easing, facebook, income elasticity, stakeholders, current account, brazil, coffee, savings, microsoft, monetary policy, crowding out, collapse, barriers to entry, multiplier effect, economies of scale, suppliers, price discrimination, uk economy, development, quiz, apple, surplus, taxation, tesco, free, scrappage, labour market, behaviour, tragedy of the commons, opportunity cost, open source, vat, smoking, cost of living, poverty trap, merger, growth, speculation, edinburgh, ownership, discrimination, northern rock, global, cost benefit analysis, ireland, oecd, supply chain, shareholders, scarcity, balance of payments, petrol, liquidity, duopoly, etonomics, iphone, starbucks, trade deficit, happiness, budget, human capital, capital, subsidies, immigration, eurozone, takeover, exploitation, ecb, paradox of thrift, wiki, advertising, public sector, labour force survey, peter day, utility, wants, brand, tax, poland, iceland, blog, recovery, foreign exchange, european union, indirect tax, robert frank, roger bootle, ocr economics, heathrow, hbos, hotels, freight, creative destruction, federal reserve, kaletsky, price war, information failure, crude oil, spain,
All tags

Login to the tutor2u Moodle VLE

Get a daily email update of new resources on the Economics Blog

Discussion forums for Economics teachers

Follow tutor2u on Twitter

 Jim  | Geoff  | Others

Latest entries

Categories

Monthly Archives

Syndicate