Managers need to know: Managers need to understand how to manage recessions and when they arrise so that they understand what they can do to stay on top of it and not fall under.
| Causes of Recessions: Causes of recessions is when there is an excessive amount of goods and there are not enough services that can provide. | How it works: Recessions are when there is a downfall in different outputs in services which then leads to a higher rate of unemployment. | Associated Recessions: Associated Recessions are when there is a major decline in economy spread across a country that lasts more than a few months, maybe even years. |
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| monetary policy | The Fed can slow the economy by tightening monetary policy, which decreases the money supply and/or raises interest rates. Higher interests reduce economic activity by increasing financing costs. | all recessions? The most famous may be the 1980 recession following the Fed under the then chairman Paul Volcker dramatically raised interest rates to fight inflation |
| supply shocks | A sudden increase in an essential commodity can tip the economy into recession. A good example is the oil crisis of the 1970s. | the 1973-75 recession following an oil embargo |
| credit crunches | Banks play a critical role in the economy by funding business operations and production and individuals for their purchases of big-ticket items like houses or cars. When loans become unavailable (credit crunches), the economy can fall into recession. | the Great Recession of 2007-2008 following the burst of the U.S. housing market bubble |
| waves of optimism and pessimism | Listen to the everyday business managers to gauge the level of uncertainty in the economy. When they start sounding gloomy, a recession may be around the corner. | the 2001 recession following the September 11 attack |
| consumer confidence | In some economies, consumer spending plays a critical role. The United States is a good example. A sudden and wide swing in consumer confidence can influence the economy. | the 1990-1991 recession in the buildup of troops prior to the first Persian Gulf War |
| fiscal policy | Increased government spending, such as new highways and aircraft carriers, can stimulate the economy. The government can also use taxes to influence the economy. For example, a tax reduction would leave more money for consumers to spend and vice versa. | the 1970 recession following the end of Vietnam War, |
| foreign business cycles | A recession in an essential trading country can influence the domestic economy. For example, a Canadian recession can negatively affect the economy in the northern border regions of the United States that heavily rely on trade with Canada. | |
| trade wars | Restrictions on foreign trade reduce our exports to the foreign country and thus can be recessionary. The Great Depression is a good example. | the Great Depression following the Smoot-Hawley tariff |
| speculative mania | An asset price bubble and the following crash can contribute to a recession. When asset prices crash, consumers feel less wealthy and decrease spending. | Japan’s depression in the 1990s following a real estate boom, the 2001 recession following the American high-tech stock market bubble, the great tulip craze of Holland in 1636-1637 |
Monetary policy is when there is a decline with different interest rates and can affect different financial institutions.
To be able to watch gauge change in monetary policy you will need to be able to reserve different requirements over others, as well as watching different discount rates.
Supply shocks can be positive or negative, if it is positive you will see an increase in outputs causing prices to decrease, while if its negative shock you’ll notice an increase in price.
To be able to gauge supply shocks different approaches to cater to it would be to reduce value of currency which would allow a boost in exports, or by reducing inflation
Credit Crunches affects economy because it is caused by a decline in economic growth which reduces abilities to borrow money.
A way that we are able to gauge credit crunches is that you could separate it into two different channels by comparing firms that are sensitive to reduction as well as comparing them to firms that are insensitive.
Waves of Optimism and Pessimism can affect economy because through different statistics you can see the differences in supply and demand which leads you to be more optimistic if the supply and demand is going up, and it also can lead you to be more pessimistic if the market is going down.
You will need to watch the market value on different services that are being provided so you can have a better understanding at what the market value is on goods being offered.
Being able to understand consumer confidence and how it affects the economy is very important because consumer confidence is a way that helps us sustain economy and its expansion.
One way that you are able to watch gauge changes with consumer confidence is by taking random samples from consumers some sample questions you could ask is what do they believe to be their expected future conditions economically, and what their current economic condition is.
Fiscal policy affects the economy because it is how the government adjusts revenue in ways to influence a broader economy.
You need to watch changes in tax rates or different influxes with-in goverment spending to gauge changes through fiscal policy
Foreign business cycles affects economies because businesses will show steadier increases with outputs with-in economy, as well with foreign imports and exports.
You will need to watch international trade flows to see how it is affecting the economic market by if they are either growing or declining.
Trade wars affects economy because they can lead to various different price increases between manufactured goods. However, this could be a reason for a rise in inflation over economies overall.
To watch trade wars you need to be watching the market value of goods and services and adjust accordingly throughout the period of time. If companies are marking up prices you do to a low supply and a high demand you as well have to shift the focus to make sure that you are able to keep up.
Speculative Mania is suggesting if we have potentially seen the peak of different economic growths, this could affect the economy in a positive light if the speculative mania has not reached it peak, but also can be negative if it has reached its peak.
To watch for speculative mania you need to watch for price rises regardless of the news or not, as well as focusing on if there is a trend where different asset prices are also soaring as well.
Explain each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:
Explain the terms in your own words briefly.
Classical economics was introduced in the late 18th century and the idea behind it helped economies flourish primarily in political aspects
Keynseian economics is a bunch of different theories through macroeconomics which follows strong influences through output as well as inflation
Milton Friedman was an economist and he has been deemed to be the founder of monetarism.
The federal reserve banks is one of the main aspects of the federal reserve system and it helps implement monetary policy in the USA
Monetary policy is a way to have a nation or control control interest rates for a short term by borrowing money supply.
Federal funds rate is a form of interest rate that lends reserved balances to different institutions.
A time lag is when there is a delay from when an economic action takes place and when a consequence to that action happens.
Real interest rates are interest rates that are adjusted to help relieve different effects from inflation.
A yield curve is typically seen with-in graphs and helps us figure out different risks this helps investors make smarter decisions when looking at risks.
Fiscal policy is the governments use of collection different sources of revenue to influence the economy in the future for a country
A recession is when there is an economic decline for an extended period of time, this can lead to unemployment rates skyrocketing for the time period
Leading indicators are pieces of different sets of data that help correspond to potential future movements typically with interest.
An economic event is typically when there are different factors going into various business decisions which results in transactions through monetary value.
Describe the characteristics of the following events briefly.
This recession lasted 8 months and was not as a very big recession. It has been most notibaly labeled as the “jobless recovery”
The 2001 recession was one of the worst recessions in our time period, during this time the unemployment rate sky rocked with over 1.3 million people losing their jobs in which some layoffs deemed to be permanent due to the job market being so scarce.
The 1973-1975 recession started off because gas prices started to sky rocket. The reason for this was because the government was spending tremendous amounts of money to fund the Vietnam war, and having the wall street stock market crash
The Smoot-Hawley tariff was an act that was put into place to help protect farmers in the United States from foreign competition.
The great tulip craze of holland otherwise known as tulip mania was a time where everyone was obsessed over tulip bulbs, however it had reached its peak in 1636-1637 due to no deliveries being able to made because of contracts constantly being changed this caused the tulip trade to force a halt.