Tag: accelerator

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Accelerating the recession

Investment in the UK in quarter 2 2009 fell by the largest amount since records began in 1965. Why has this happened and what does it tell us about the determinants of investment? Does it mean that businesses are short sighted or risk averse, or does the lack of investment reflect a lack of finance in the aftermath of the credit crunch. The following articles look at the data and what they signify.

British business investment plunges most in 44 years Telegraph (27/8/09)
Business investment falls sharply in Q2 Reuters (27/8/09)
Economy shrinks less than thought BBC News (28/8/09)
UK GDP contracts less than expected Telegraph (28/8/09)

For the ONS data see:
Business Investment: 10.4% down in second quarter 2009 ONS (27/8/09) and
Business investment: Provisional results – 2nd quarter 2009 ONS Statistical Bulletin (27/8/09)

Questions

  1. Chart the quarterly percentage change in business investment and quarterly economic growth on the same diagram. (See the second ONS link above and also Gross domestic product: Preliminary estimate – 2nd Quarter 2009 and GDP growth (revised estimate).
  2. Why has investment fallen so dramatically?
  3. Is the pattern of investment and GDP growth consistent with the accelerator theory?
  4. To what extent is investment a leading or a lagging indicator of economic activity?
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Sharp decline in German exports

With the world economy in recession, major exporting countries are suffering more than many, especially exporters of high-quality manufactured products, many of which have a high income elasticity of demand. Germany, the world’s largest exporter, has been particularly hard hit. In the year to April 2009, the value of German exports fell by 28.7 per cent. The following articles look at the data and some of the explanations.

German exports in April 2009: –28.7% on April 2008 Destatis (9/6/09)
German exports plunge amid economic slowdown DW-World (9/6/09)
Weak German economic data dash early recovery hopes Monsters and Critics (9/6/09)
German industry output disappoints, falling 1.9 pct Guardian (9/6/09)
See also this video on the recession in the EU: EU recession ‘deeper than expected’ BBC News (15/5/09)

Questions

  1. Why have German exports fallen considerably more than German GDP? How can the accelerator theory help to explain the fall in German exports?
  2. If economic sentiment recovers in Germany, how will this affect (a) aggregate demand; (b) imports; (c) exports?
  3. Find out what has happened to the euro exchange rate index and assess whether movements in the euro have contributed to Germany’s export performance (see for example the Bank of England Statistical Interactive Database).