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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. Pick A Dot