67-external_shocks

67-external_shocks - External Macroeconomic Shocks and...

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External Macroeconomic Shocks and Cyclical Fluctuations
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A world of demand and supply-side shocks
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Demand shocks Demand side shocks Examples to use These are shocks affecting the rate of growth of demand both in the UK and other countries
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Demand shocks Demand side shocks Examples to use These are shocks affecting the rate of growth of demand both in the UK and other countries Slowdown or a recession in major trading partners Financial crisis Sharp fall in property or share prices Collapse in consumer or business sentiment Volatility in the exchange rate
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Sharp rise in unemployment for USA Percentage rate of growth year on year at constant prices United States - Growth and Unemployment Source: Reuters EcoWin 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 3 4 5 6 7 8 9 10 Percent 3 4 5 6 7 8 9 10 Unemployment Rate (% of labour force) -3 -2 -1 0 1 2 3 4 5 -3 -2 -1 0 1 2 3 4 5 Economic Growth
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Supply shocks Supply-side shocks Examples to use These are shocks affecting costs and prices in different countries Can impact directly on SRAS in an economy but may also have longer term effects on LRAS SRAS = cost of supplying with given technology LRAS = productive potential of economy Commodity price changes ( & ) Wage costs Cost of imported raw materials, semi- finished and finished goods LRAS affected by technology shocks
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Commodity prices have been unstable Index of Prices 2000=100 The Economist Commodity Price Index Source: Economist Commodity Price Index 05 06 07 08 09 100 125 150 175 200 225 250 275 300 325 Index 100 125 150 175 200 225 250 275 300 325 All Commodities Industrial Metals Food
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Especially food prices in 2007-08 Weekly index, 2000 = 100 Global Food Prices Source: Economist Commodity Price Index 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 75 100 125 150 175 200 225 250 275 300 Index 75 100 125 150 175 200 225 250 275 300
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Analysing economic shocks Make good use of AD-AS analysis (use your AS economics!) Consider short-run and possible longer-run effects
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This note was uploaded on 02/08/2012 for the course ECO 51844 taught by Professor Sabet during the Spring '11 term at FIU.

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67-external_shocks - External Macroeconomic Shocks and...

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