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The economic rollercoaster...

Measuring Economic Activity. Gross Domestic Product is a measure of the value of all outputs in an economy in a single year - the ? value of all goods and services producedThere are 3 ways of calculating GDP, these are Income Method, Output Method, and Expenditure methodThese will all give the sam

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The economic rollercoaster...

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    1. The economic rollercoaster...

    2. Measuring Economic Activity Gross Domestic Product is a measure of the value of all outputs in an economy in a single year - the £ value of all goods and services produced There are 3 ways of calculating GDP, these are Income Method, Output Method, and Expenditure method These will all give the same value of GDP Current level (2004) of GDP in the UK economy is around £970 billion.

    3. Economic or Business Cycle

    4. Two Key Features of GDP: It grows over time the long run trend in GDP is positive, around 2.75% per year in the UK, (This is in real terms allowing for effects of inflation) It fluctuates as it grows GDP exhibits business cycle movements. In the last 15 years it has varied between plus 4% and minus 2%

    7. The Pacific Rim Growth

    9. Parts of Economic Cycle - Recovery Consumer confidence grows – leading to increased borrowing and spending Firms increase output – build up stock levels Spare capacity used, then Investment occurs Unemployment falls – it make take more than a year of recovery for large changes in unemployment levels

    10. Parts of Economic Cycle - Boom Low levels of unemployment – shortages of labour occur pushing up wage rates High levels of consumer borrowing and spending Firms working at full capacity Profit levels high Inflation Increasing Interest rates increasing Boom in housing market

    11. Parts of Economic Cycle - Recession Growth rate of GDP is falling or negative Firms decrease production and reduce stocks Unemployment rises Inflation falls Investment falls Firms suffer from falling profits, falling returns of investment, redundancy costs.

    12. Parts of Economic Cycle - Bust High levels of unemployment – unemployment increased to 2.5 million during the recession of the early 90’s, against 900,000 now. Low levels of investment Reduced spending by consumers especially on consumer durables High levels of spare capacity Low inflation

    13. Government and Economic Cycle The government will attempt to control fluctuations in economic growth Aims to achieve growth at around trend level In the past has used Fiscal and Monetary policy to achieve this objective In the last 10 years the focus has been on the use of Interest Rates ( monetary policy) and Supply Side policies to achieve constant growth. Over the last 10 years the UK has been recession free, though growth has been as low as 1.5%

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