Download File - BSAK Business & Economics

Economic Growth
Definition
Steady growth in the productive capacity of the
economy (& so a growth of national income).
Benefits of economic growth
• Higher living standards
• Employment and investment
• Fiscal dividend
Drawbacks
• Inflation
• Environmental concerns
GDP
Economic growth is measured by GDP
(Gross Domestic Product)
This is the total amount of goods and services a
country produces during a year.
The Economic Cycle
Important Stages
Boom
Slowdown
Recession
Recovery
The UK Economy
following the
Economic Cycle…
Financial
Sector
Boom 0407
The
Barber
Boom
73-74
Stock
Market
Boom 97The
2000 Slight slump
Lawson
The Oil
and switch to
Boom
crises
housing 01-03
74-76 86-88
The burst of
the leverage
Financial
bubble 90Bad
System
92
Monetary
crash 08 Policy 8010
82
Economy Crash
What Happened In ’92?
1990-92 Burst of Leverage Bubble. The huge rise in asset (mainly
house) prices caused by the Lawson Boom saw a rise in borrowing on the
back of securities. The housing crash followed, leaving many in negative
equity, bankrupting people and business.
And In late 2007?
2008-10 Financial System Crash
The banks found themselves in difficulty when those sub prime loans just could not
be repaid, and the government had to step in to save peoples savings from going
under.
The US and UK’s comparative advantage caused a global recession, due to the animal
spirits of ‘corruption’ and ‘confidence’ throughout.
Stock
Market
Boom
19972000
Financial
System crash
2008 - 2010
Slight slump
and switch to
housing
2001-2003
Stock Market Boom;1997-2000
The revelation of the internet led
to a huge excitement over
internet stocks, which caused
the greatest bubble in stock
market history. Some funds and
share prices returned over 100%
Financial
Sector
Boom
2004-2007
Slight Slump 20012003 A combination of
the Wall Street crash
and the collapse of the
World Trade Centre
caused a slowdown of
trade.
Final Sector Boom 2004-2007
The confidence that house prices
could only go up caused many to
borrow excessively. The financial
sector lapped up the confidence,
with major banks offering sub
prime loans to anybody to
exceed performance targets, and
often selling those loans on to
others giving them a AAA rating.
Financial System
Crash 2008-2010 The
banks found
themselves in
difficulty when those
sub prime loans just
could not be repaid,
and the government
had to step in to save
peoples savings from
going under.
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