UK Recession and Business Capacity - Teacher Presentation
This streamed presentation provides a snapshot of the latest economic data on UK business capacity. The slump in output in the British economy has left many businesses and industries with a huge amount of spare capacity and the negative output gap is expected to grow beyond 6% of GDP in 2010 according to the OECD. A high level of spare capacity (or productive slack) has important consequences for jobs, inflationary pressures, planned investment and business profits.
Launch interactive presentation on Recession & Capacity
Download pdf handout of slides
Endogenous models of the economic cycle
In A2 macro today we are considering some of the internal dynamics of the business cycle and in shaping turning points. We will cover stock cycles, multiplier effects, the accelerator mechanism and the significance of the output gap. I have attached below a chart-based handout in word format used for annotated notes.
Endogenous_Models_of_the_Economic_Cycle.doc
Aggregate Demand and the UK Economic Cycle
Here is our latest streamed presentation on the UK economy - aggregate demand and the cycle - as we search for evidence of possible turning points in the cycle. This is part of our set of macroeconomic chart room presentations - click on related links for more.
The charts cover:
Components of aggregate demand
Growth of Real GDP
Path of UK GDP since 1970
Growth and unemployment
Output gap
Output gap and unemployment
Output gap and real GDP
Output gap and CPI inflation
GDP and GNP
The Stock Cycle
Businesses operating at full capacity
Hopefully a useful resource for colleagues teaching the economic cycle and shocks
Deflation in the European Economy
Yesterday we learned that France and Germany were making tentative steps out of recession with 0.3% increases in real GDP in both countries during the second quarter (April through to June). Today the latest consumer price data came out for the Euro Zone and they show that the single currency area is now firmly in the grip of price deflation.
The average annual rate of inflation for the sixteen nations that are participating in the single currency was -0.7% in July 20092, down from -0.1% in June. A year earlier the rate was 4.0%.
For the EU as a whole there remains wide variations in the rate of inflation. Deflation is happening in Ireland (-2.6%), Belgium (-1.7%) and Luxembourg (-1.5%), whereas CPI inflation is relatively high in Romania (5.0%), Hungary (4.9%) and Poland (4.5%).
The latest CPI inflation data for the UK was 1.8% in June - a tad below the inflation target of 2.0%.
Inflation in the Euro Zone is likely to remain low in the near-term:
1/ There is a growing margin of spare capacity in the EU economy with most countries fighting recession and operating with a large negative output gap
2/ The recession is having a dampening effect on wage pressures
3/ A stronger Euro against the US dollar is keeping a lid on the cost of rising international commodity prices
4/ Manufacturers and retailers have lost pricing power because of the economic downturn
Did you feel the shift?
Yesterday the UK’s Production Possibility Frontier shifted to the right – did you notice?
The potential supply of labour to the workforce increased, as ministers decided that a review of the default retirement age of 65 should be brought forward to next year rather than 2011.
Currently 1.3 million people work beyond the state retirement age, but apparently many more say that they would like to do so. For some this is because they don’t want to have to rely on the state pension as their only source of income from the age of 65, for others because they are quite capable of continuing to make a full contribution to the workforce, and choose to do so.
Age discrimination legislation is instrumental here - a number of age discrimination cases are waiting in the pipeline for the outcome of this and another challenge being brought against the government by the charity Help the Aged and Age Concern next week.
read more...»Q&A: Does a positive output gap always mean rising inflation?
A student asks “Does a positive output gap always mean rising inflation?”
read more...»Q&A: What do we need to know about output gaps?
Q&A: What do we need to know about output gaps?
For AS level (the AQA board)
“An understanding of potentially inflationary, positive, and potentially defl ationary, negative, output gaps is also expected in the context of the economic cycle. Candidates should understand that positive output gaps occur when actual GDP is above the productive potential of the economy, and negative output gaps occur when actual GDP is below the economy’s productive potential.”
read more...»Q&A: AD and Inflationary Pressures
A student asks: Will a rise in AD will only cause cost-push inflation if there is a positive output gap?
read more...»Revision - Linking Output Gap to other Macro Issues
How much spare capacity does an economy have to meet a rise in demand? How close is an economy to operating at its productive potential? These sorts of questions link to an important concept – the output gap. The output gap is the difference between the actual level of national output and its potential level and is usually expressed as a percentage of the level of potential output. In this revision blog we link the output gap to aspects of macroeconomic performance.
read more...»Geographical Seepage in the World Economy
I was listening to a talk by Stephen King from HSBC a few weeks ago and he mentioned the idea of geographical seepage as it relates to the current state of the world economy.
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