GDP
- Y = C + I + (X - M)+ G
Where
Y= GDP
C= Consumer Expenditure
I= Investments
X= Exports
M= Imports
G= Government expenditure
Thus, Y= $1000+$200+$300+$200
Y= $1700
- If we increase our domestic energy production, it will help us to import less energy from foreign countries, thus decreasing the value of imports. This will increase the excess of exports over imports and thus increase the GDP of the country.
Inflation
- Rate of inflation= (Current CPI – Previous CPI)/Previous CPI * 100
Rate of inflation= (111-106)/106*100 = 4.717%
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- Rate of inflation= (234-217)/217*100 = 7.834%
Unemployment rate
- Unemployment rate= number of people unemployed/number of people in
civilian labor force*100
Unemployment rate= 2500/30000*100 = 8.333%
Unemployment rate = 2000/30000*100 = 6.667%
Yield Curve
- The difference in rates among these bonds is caused by maturity risk premiums. The longer the period it takes for a bond to mature, the higher the interest rate that must be offered to investors to offset the uncertainty of the future.
- It is not true to say that: The liquidity premium requires that an asset can be sold both quickly and for fair market value. This is because, a liquidity premium is compensation that is given to an investor for investing money in bonds that are not actively traded or in other words, something that is difficult to sell. Thus, for a liquidity premium to be awarded, the bonds have to be illiquid, meaning that they cannot be sold or bought easily at a fair market price.
- The yield curve slopes upward because short-term rates are lower than long-term rates.
International Economic Trends
- In the year 2008, Japan had the lowest change in Real GDP out of the four countries, at around 1.5%. The highest change in Real GDP was that of the United Kingdom, at around 3.5%. The United States and Canada had almost similar changed in Real GDP at around 2.0%. The year 2009 saw a sharp decline in the Real GDP of all the four countries, with Japan’s having a change of -8.0%, which was the sharpest decline out of the four countries. In the United Kingdom, the real GDP decreased by approximately 5.0%, while in Canada, it decreased by approximately 3.5%. In the US, it increased by 0.5% respectively. In 2010, however, the real GDP for Japan, Canada and the United Kingdom decreased by 2.0% for all the three countries. Clearly, Japan was the country with the greatest improvement, coming from a drop of 8.0% the previous year, to a drop of 2.0%. Nevertheless, the United States saw a further drop in its Real GDP from the previous year by around 1.5%. By 2011, all the four countries saw a steady rise in the real GDP with the United Kingdom recording a change of 2.0%, the United States seeing a change of 2.5%, Canada having a change of 3.5%, and Japan’s being the highest increase at around 5.8%. Between 2011 and 2012, there was a slight increase in the percentage decline of Real GDP for all the four countries, followed by a slight decrease in the percentage increase. Japan recorded the greatest change in real GDP within this period compared to the other three countries. In 2012, the percentage change in real GDP of Japan stood at around 0%, while that of the United Kingdom, the United States and Canada stood at approximately 1.0%, 2.0% and 2.5% respectively. Clearly, Canada recorded the highest percentage change in Real GDP. The start of 2013 saw the four economies being more stable, in that they maintained positive changes in their real GDP. The four countries recorded a positive percentage change of between 0% and 2.0%.
- The CPI (Consumer Price Index) is a measure of the average change in price of a sample of household goods and services. It is an estimate of the price change of the most commonly used items in households. In the beginning of 2008, Japan had the lowest percentage decrease in CPI at approximately 0.2%. The United Kingdom experienced an increase of around 1.8%, while Canada and the United States experienced increases of approximately 2.2% and 2.4% respectively. The year 2008 saw a constant increase in percentage change of CPI for all the four countries with the CPI percentage change peaking at 2.2%, 3.2%, 5.0% and 5.2% for Japan, Canada, the UK and the US respectively. However, by the beginning of 2009, the percentage change in CPI had dropped in all countries. The rates continued to drop for the most part of 2009, reaching their lowest towards the end of 2009. By the beginning of 2010, the percentage decrease in the CPI stood at 2.0% in Japan, 0% in the United States and Canada, and an increase by 1.6% in the United Kingdom. The year 2010 saw an increase in percentage change for the four countries, then a decrease towards the end of the year. Throughout the year 2011, there was a steady increase in the percentage change and by the beginning of 2012, Japan still had the lowest decrease at 0.2%, while Canada had a 2.4% increase, followed by the United States at 3.5%, and the United Kingdom at almost 5.0% percentage increase in CPI. However, by the beginning of 2013, the four countries recorded a slightly lower percentage change in CPI, with Japan recording the highest percentage decrease and the United Kingdom recording the lowest percentage decrease, which was still positive.
- The percentage increase in the employment rate for Japan and the United States in 2008 was approximately 0.4%, 0.6% in the United Kingdom and approximately 2.5% in Canada. However, by 2009, there was a percentage drop in employment. It was approximately 2.0% in the United States, and 0.7% in Japan and the United Kingdom. However, there was a slight increase of about 0.5% in the employment rate of Canada. Throughout 2009 and in the beginning of 2010, the four countries registered a sharp drop in the rate of employment, with the United States recording the greatest percentage decrease in employment at 4.0%. The UK, Japan and Canada recorded percentage decreases by 2.4%, 1.8% and 1.5% respectively. However, things improved throughout the year 2010, and by the start of 2011, Canada, Japan, and the US registered an increase in the percentage of employment. The three countries saw an increase of between 0.1% and 2.0% in the rate of employment. By mid 2011, the UK also registered an increase in percentage of employed persons. However, by the beginning of 2012, Japan registered a percentage decrease in employment which continued to drop till mid 2012, then started increasing steadily till 2013. In the UK, US and Canada, the percentage of employment has been experiencing short declines and increases since the beginning of 2012 but has remained positive.
- The world went into recession from mid 2008, while the US went into recession from December 2007. The great recession saw the collapse of many companies in the private sector, and it was arguably the worst since World War II (Verick & Islam, 2010). From the Real GDP graph, the worst hit country was Japan, while according to the employment graph, the worst hit country was the US. Even though Japan registered a sharp increase in GDP in the year 2010, it was not consistent and its real GDP kept fluctuating throughout 2011 and 2012, before finally settling at a percentage just above zero in 2013. Its employment rate has been on the decline since 2011 despite a sharp increase during the year 2010. On the other hand, the US has seen a steady increase in its employment rate since 2010, and even if it fluctuates slightly, it has never been negative since 2010. Its real GDP also increased from 2010 and has remained positive with only slight variations since then. Therefore, from the facts outlined above, the US has had the best overall economic recovery since 2008.
References
Federal Reserve Bank of St. Louis, (2013). Inflation and Prices. International Economic Trends,
pp. 32-39.
Federal Reserve Bank of St. Louis, (2013). Labor Markets. International Economic Trends , pp.
23-31.
Federal Reserve Bank of St. Louis, (2013). Output and Growth. International Economic Trends,
pp. 2-9.
Verick, S., & Islam, I. (2010). The Great Recession of 2008-2009:Causes, Consequences and
Policy Responses. Bonn: IZA.
