Recessions 0.0 / 5 ? EconomicsRecessionA2/A-levelAQA Created by: LucyHigginsCreated on: 10-01-16 12:24 Define Recession a period of time when the economy contracts (negative economic growth: GDP) for two consecutive quarters 1 of 12 Characteristics of a Recession 1) Lower output 2) Higher unemployment 3) Lower inflation 4) Decline in consumer confidence 5) fall in value of assets such as houses and shares 2 of 12 Causes of recession Either demand side shock (fall in AD), supply side shock (rise in SRAS) 3 of 12 Demand Side 1) Higher interest rates (1991, increased interest rates made mortgages expensive, leading to decline in consumer spending and fall in house prices) 4 of 12 Demand Side 2 2) Credit crunch and fall in bank lending (2008, bank losses led to fall in bank lending causing lower investment and consumer spending) 5 of 12 Demand Side 3 3) Global recession- will lead to lower exports and lower confidence 6 of 12 Demand Side 4 4) Stronger exchange rate- appreciation in exchange rate will make exports less competitive 7 of 12 Demand Side 5 5) Fall in house prices- cause negative wealth effect, leading to lower spending 8 of 12 Demand Side 6 6) Tightening of fiscal policy-cut government spending and increase taxes will cause lower AD 9 of 12 Supply Side 1 Rise in oil prices would cause the SRAS to shift left causing both inflation and lower GDP 10 of 12 Supply Side 2 Supply shock causes dilemma- interest rates could be increased to reduce inflation OR they could be cut to boost economic growth 11 of 12 Supply Side 3 leads to a worse trade off-both higher inflation and higher unemployment 12 of 12
low interest rates bringing about a recovery from recession in an economy such as the UK 3.5 / 5 based on 4 ratings
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