Economic presentation

1. Economic presentation By Rosita.

2. This is the natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle. An economy is deemed to be in the expansion stage of the economic cycle when gross domestic product (GDP) is rapidly increasing. During times of expansion, investors seek to purchase companies in technology, capital goods and basic energy. During times of contraction, investors will look to purchase companies such as utilities, financials and healthcare.

3. Negative & positive output gap • An economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity. There are two types of output gaps: positive and negative. • A positive output gap occurs when actual output is more than the full-capacity output (upward pressure on inflation). • Negative output gap occurs when actual output is less than full-capacity output (downward pressure on inflation). • The measure compares the actual GDP (output) of an economy and the potential GDP (efficient output). When the economy is running an output gap, either positive or negative, it is thought to be running at an inefficient rate as the economy is either overworking or under working its resources. • Economic theory suggests that positive output gap will lead to inflation as production and labour costs rise.

4. Possible trade offs and gaps in the economic cycle. • The UK will operate with a large negative output gap for some time.  But much depends on whether the recession will do long-term damage to our productive capacity. • This might arise from a rise in business failures and people leaving the labour market if they suffer long periods out of work (long term structural unemployment). This is known as a hysteresis effect

5. NOMINAL GDP = A gross domestic product (GDP) figure that has not been adjusted for inflation. It can be misleading when inflation is not accounted for in the GDP figure because the GDP will appear higher than it actually is. If you have a 10% ROI and inflation for the year has been 3%, your real rate of return would be 7%. If the nominal GDP figure has shot up 8% but inflation has been 4%, the real GDP has only increased 4%.  • REAL GDP = An inflation-adjusted measure that reflects the value of all goods and services produced in a given year. Real GDP can account for changes in the price level, and provide a more accurate figure. • GDP PER CAPITA = A measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity. • GNP = An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents. GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

6. RPI and CPI • RPI is the Retail Price Index; the CPI is the Consumer Price Index. • the Retail Prices Index (RPI) is a measure of inflation published monthly by the office for national Statistics. It measures the change in the cost of a basket of retail goods and services. • The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

7. Economic Presentation Joshua Chimbetete

8. Economic Cycle The natural fluctuation of the economy between periods of growth and recession. Factors such as GDP, interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

9. Output Gap • The output gap is the difference between the actual level of national output and the estimated potential level and is usually expressed as a percentage of the level of potential output.

10. Negative Output gap • Negative output gap occurs when actual output is less than full-capacity output. • A negative output gap, in which actual production is lower than efficient production, indicates that resources are not properly allocated. 

11. Positive Output gap • A positive output gap occurs when actual output is more than the full-capacity output. • Positive output gap – upward pressure on inflation • • If actual GDP is greater than potential GDP then there is a positive output gap. • Some resources including labour are likely to be working beyond their normal capacity e.g. making extra use of shift work and overtime. • The main problem is likely to be an acceleration of demand-pull and cost-push inflation.

12. Trade off & Gaps • A trade-off, then, involves a sacrifice that must be made to obtain a certain product, rather than other products that can be made using the same required resources.  • A trade off of being positive in the economics cycle is there will be improvement in living standards, more jobsand greater business confidence. But at the same time you risk inflation.

13. GDP • Nominal GDP is where a gross domestic product (GDP) figure that has not been adjusted for inflation. • Real GDP isan inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices • GDP per Capita measure of the total output of a country that takes the gross domestic product (GDP) and divides it by the number of people in the country. The per capita GDP is especially useful when comparing one country to another because it shows the relative performance of the countries. A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity. • GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders. • GDP growth at 0.7%

14. RPI • In the United Kingdom, the Retail Prices Index is a measure of inflation published monthly by the Office for National Statistics. It measures the change in the cost of a basket of retail goods and services. Prices Quantities 2000 2010 2000 2010 Champagne 3 4.5 5 6 Cigars 4 7 6 9 Expenditure in 2000 based on 2010 quantities = (price of champagne in 2000 x quantity of champagne in 2010) + (price of cigars in 2000 x quantity of cigars in 2010) = (3 x 6) + (4 x 9) = 54 Expenditure in 2010 = (price of champagne in 2010 x quantity of champagne in 2010) + (price of cigars in 2010 x quantity of cigars in 2010) = (4.5 x 6) + (7 x 9) = 90 Index number for 2000 = 54/54 = 100. Index number for 2010 = 90/54 = 1.66. RPI grew by 3.1% down from 3.3%.

15. CPI The consumer price index or CPI is a more direct measure than per capita GDP of the standard of living in a country. It is based on the overall cost of a fixed basket of goods and services bought by a typical consumer, relative to price of the same basket in some base year. •The Consumer Prices Index (CPI) grew by 2.8% in the year to July 2013

16. EconomicsPresentation

17. The economic cycle Economists have realised that economic growth/ decline over a period of time is not a steady linear process. The natural fluctuation (movement) of the economy from expansion (when the economy grows) to contraction (when the economy hits a recession) is effected by factors such as gross domestic product, interest rates, levels of employment and consumer spending can help change the current situation of the economic cycle. On a graph- The line appears to constantly move up and down.

18. Positive and Negative output gapsand trade offs Negative output gapWhen actual economic growth is below the trend line, meaning lower than expected levels of output and higher levels of unemployment. When there is a negative output gap, economic journalists often talk about the economy going into a recession- or in a worse situation possibly a slump (when the national economy is underperforming resulting in the government possibly having to increase aggregate demand. Positive output gap When the actual GDP exceeds trend GDP which means the economy is growing more rapidly than usual, unemployment rates are low and incomes are increasing this may sound like a good thing however this may cause an increasing inflationary pressure as people will be spending more money, meaning demand will be higher therefore prices will rise. To curb inflation government may increase interest rates.

19. GDP-gross domestic product Nominal GDP – Is a figure of gross domestic product that does not take into account inflation. This can be misleading as when inflation is not taken into account the GDP will appear higher than it actually is. Real GDP- Is the measure of gross domestic product of which takes inflation/deflation levels into account. This shows a distinction between real and nominal values of economics. GDP per capita- Is a measure of a country, taking the gross domestic product and dividing it by the number of people living in that country- This is useful when comparing GDP data from one country to another. GNP gross national product – Is a figure of the GDP of a country as well as any other income earned by inhabitants from overseas investments and minus income of residents in other countries taking out of the economy.

20. RPI and CPI Retail Price Index- The main domestic measure of inflation in the UK, measuring the average change from month to month in the prices of goods and services consumed by most households. Its a weighed price index calculated by the office of national statistics and used to measure the rate of inflation over the space of a year. The ONS provide headline figures and give detail breakdowns for the inflation and deflation of specific products such as food, alcohol, transport and leisure. The ONS do this by studying a range of goods and services and selecting the most prominent to put into a basket of the approximately 650 highly weighted goods and services.Consumer Price Index – RPI was used to measure changes in prices until December 2003 when the chancellor changed to a new base- The consumer Price Index, which is used to assess price stability within the euro area by using CPI, the government can now directly compare the UK’s inflation with other European countries. Weighting – Where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending. For example

21. Macro-Economics By Amrita 

22. Economic Cycle The economic cycle is characterized by four main phases: Boom (Peak): high levels of consumer spending, business confidence, profits and investment. Prices and costs also tend to rise faster. Unemployment tends to be low as growth in the economy creates new jobs Recession: falling levels of consumer spending and confidence mean lower profits for businesses – which start to cut back on investment.  Spare capacity increases + rising unemployment as businesses cut back and reduce stocks Slump / depression: a prolonged period of declining GDP - very weak consumer spending and business investment; many business failures; rapidly rising unemployment; prices may start falling (deflation) Recovery: things start to get better; consumers begin to increase spending; businesses feel a little more confident and start to invest again and build stocks; but it takes time for unemployment to stop growing.

23. Negative Output Gap • In a negative output gap actual growth is below trend growth and the economy is underperforming its potential (inefficient) and as a result the increase in the economy's welfare and standard of living (income of a person) is lower than would be reasonably expected. • Although exports are likely to increase because demand in the domestic economy is low there is also likely to be unemployed labour in the economy. • Imports will be low as consumers purchasing power will be reduced. • Governments have to take a view as to which objective they consider the most likely to increase the populations economic welfare. They also want to be re-elected and will not want the economy performing below its optimum.

24. Positive Output Gap • In a positive output gap growth will be above trend as the economy is performing above its potential and growing faster than expected. • This will reduce unemployment but there is a danger that the labour market will become ‘tight’ and firms will not be able to employ the workers that they require. Workers will be in a position to push for wage increases and firms will increase wages to stop labour going elsewhere. • The increased costs to firms will increase inflationary pressure as firms pass n increased costs in the form of higher prices. Both increased inflationary pressure and increased wages are likely to increased imports, as they will appear relatively cheaper and increased incomes in the UK leads to increased expenditure on imports. • Exports may be reduced due to inflation and domestic firms targeting the expanding home market. • The authorities have to decide which objective is important to them. Governments have taken the view that control of inflation is vital to achieve their other macroeconomic objectives and t increase the welfare of the population.

25. Trade Off’s and Gaps in the Economic Cycle • Trade offs is the opportunity cost of one macroeconomic objective in terms of another i.e. sacrificing something for something else. • The fluctuations of the economic cycle produces both positive and negative output gaps. • Negative- below the trend line and positive- above the trend line. • Governments do not want price instability, unemployed factors of production or an excess of imports over exports they try to encourage some influence over aggregate demand throughout the cycle.

26. Key Terms • Nominal GDP- current information where inflation hasn’t been taken into account. A nominal figure doesn't’t give a reliable measure of the actual increased output of the economy as part of the increased output could be made up of price increases. • Real GDP- the gross domestic product where inflation has been included. Also shows how much of the actual increased output of the economy and the price output. • GNP (Gross National Product)- includes income that Uk residents receive from abroad minus the amount that is paid out of our economy to people overseas. • GDP per Capita- the amount available to the average person to spend.

27. RPI • The Retail Price Index (RPI) measures inflation in the UK. This official measure is calculated each month by taking a sample of goods and services, which the typical household might buy. Included are such items as food, heating, housing, household goods, bus fares and petrol. • Those items of spending that are the most important in the spending patterns of an average household are given a higher weight in the overall retail price index. Collecting information on prices for the RPI Every month, a member of the government statistical team will visit a number of shops and examine prices and record the details for the government. • These figures for retail prices will reveal the trend for prices over the previous month, but an annual rate is also published and it's this number which attracts the attention of the media, wage bargainers and policy makers who have to decide whether it's appropriate to increase tax allowances and state benefits to compensate for inflation.

28. CPI • The consumer price index is a standardized weighted measure of price inflation used to compare the inflation performance of countries in the EU. • CPI excludes mortgages, estate agents fees and the local authority council tax.

29. Weight Price Indices • Weights show the relative importance of household spending on different goods and services. • A family expenditure survey is used to track spending levels on a basket of products. • Weightings are periodically reviewed. • Heavily- weighted items thus have more impact on changes in the average cost of living.

30. Economics

31. Economic cycle Trend Line UK economy are around this stage

32. Negative and positive output gap Caused by an upward pressure on inflation: - Acceleration of demand – pull. - Cost-push inflation • Caused by a downward pressure on inflation: • Under utilised labour and capital machinery • Higher than average Unemployment rate. Current unemployment rate: 7.7%

33. GDP Nominal GDP: A gross domestic product (GDP) figure that has not been adjusted for inflation. Real GDP: Real GDP is a macroeconomic measure of the value of output economy, adjusted for price changes. The adjustment changes the nominal GDP into an index for quantity of total output. GDP per capita The total value of all the goods and services produced by a country in a particular year, divided by the number of people living there. GNP An estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year. Current UK GDP growth: 0.7% Government target: sustainable growth

34. RPI and CPI CPI (Consumer price index) -500 of the most popular products and services that the UK buy. INCLUDING MORTGAGES RPI (Retail price index) – The same as CPI without mortgages. The consumer price index is a weighted price index, which measures the monthly change in prices in over 500 different goods and services. Calculating a weighted price index…

35. All countries experience regular ups and downs in the growth of output, jobs, income and spending. These are the natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). GDP, interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

36. Output Gaps These are the economic measure of the difference between the actual output of an economy and the output it could achieve when it is most efficient, or at full capacity. There are two types of output gaps: positive and negative. A positive output gap occurs when actual output is more than the full-capacity output (at the peak), this will occur in the boom period of the economic cycle. Negative output gap occurs when actual output is less than full-capacity output (at the trough) this will occur in the bust period of the economic cycle/

37. A trade-off is a situation that involves losing one quality or aspect of something in return for gaining another quality or aspect. In economics it is also called opportunity cost. A trade off when the economy is in a negative output gap is that the standard of living and welfare of a country will be lower than expected. A trade off at a period of positive output gap, there will be low unemployment, as a result the trade off will be that firms will have to increase wages to stop labour going elsewhere.

38. GDP • Nominal GDP: Are GDP figures that has not been adjusted for inflation e.g. Nominal GDP figure has shot up 8% but inflation has been 4%, the real GDP has only increased 4%. • Real GDP:An inflation-adjusted measure that reflects the value of all goods and services produced in a given year. • GDP Per Capita :GDP divided by the population- a measure of living standards. • GNP-An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.

39. Inflation (RPI) (CPI) RPI- Is the main domestic measure of inflation in the uk. It measures the average change from month to month in the prices of goods and services consumed by most households. CPI- is the same as RPI but leaves the costs of your home out of the basket – so rises in mortgage payments, rents, and council tax, which in real life you pay, don’t get reflected in it. Weighting- where a commodity is given a weighting proportional to its importance in the general pattern of consumer spending, this is important as it gives commodities a different value to the luxuries.

40. Macroeconomics Louise Jagger

41. Economic Cycle • National output does not rise or fall at a steady rate, instead it fluctuates almost daily to create an overall trend line. • Economic Boom; this occurs when level of national output rises beyond the level of trend rate of growth. People usually demand more, profit increases as well as investments leading to a rise in the level of employment. • Economic recession: When national output falls (negative economic growth) beyond the rate of trend of growth. People usually demand less, profit for companies decreases leading to a decrease in income and a rise in the number of unemployed people. • The output gap is the difference between the actual level of national output and the estimated potential level • A positive output gap (above trend- efficient) – usually causes a rise in inflation • A negative output gap (below trend- inefficient)- usually causes a downward pressure on inflation

42. Trade Offs & Gaps Trade offs are the opportunity cost of one macroeconomic objective for another, during the economic cycle there are many fluctuations which the Government aim to control to try and avoid rapid inflation, unemployment and to improve standard of living. During a negative output gap (a recession), the economy’s welfare is lower than expected, as well as this the standard of living usually decreases due to the rise in unemployment, this results in a decrease in average earnings. Government need to control this by choosing one economic objective to work on which will hopefully help the economy get back on track more than the others, by doing this they “trade off” all other ideas. During a positive output gap (a boom period), it is the opposite, the economy is performing above its potential, this means employment level is higher than any other time, although this seems good it can cause inflation to rise dramatically as workers demand higher wages meaning businesses have to push these extra costs onto their customers. This can cause a problem for exporting goods abroad as other countries do not have the higher wages to afford the higher priced goods and therefore will buy their goods and services for cheaper prices elsewhere. The Government in this case almost always choose to control inflation and “trade off” all the other possible economic objectives that could be worked on to help improve the UK’s exporting system.

43. G.D.P • Gross Domestic Product is the monetary value of all goods and services produced within a nation. • Nominal GDP is the GDP figure that has not been adjusted for inflation • Real GDP is a measurement including inflation, of all goods and services produced in a country in a year- it is often more accurate than nominal GDP as it includes the adjustments in the price levels. • GDP per capital is all the gross GDP divided by the amount of people in a country to produce an average, this can often help show the standard of living of a country compared to other countries. • GNP stands for Gross National Product, it is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

44. GDP-Current Data A recession occurs when there are 2 or more negative GDP growth quarters in a row, on the diagram you can see 2 recessions in 1992 and 2009/2009. The Government wants 2-3% growth a year, however at the moment you can see from the diagram the growth percentage is widely fluctuating, although in most cases the economy is growing yearly (the trend is increasing), BBC claims the economy is currently growing at 0.7%, even though this is not reaching the Government's target, it is as would be expected as we are currently on the recovery part of the economic cycle after the 2009 recession, hopefully we should reach the 2-3% target in a few years time.

45. RPI and CPI Used to calculate inflation changes CPI= headline rate (excludes mortgage interest payments, housing costs)RPI = Retail Price Index. Includes mortgage payments The Government takes out a basket of the most used goods and calculates the rise in their prices yearly, this gives us an idea of the general inflation of products in the UK This is where the 2009 recession happened, because of the negative output gap in the economic cycle, inflation was forced downwards by increased pressure Weighting Weighting is the percentage of each category of the basket of goods- it is decided by looking at how much is bought and for what price. For Example: If more food products were produced at a higher price than industrial products, then food would have a larger weight, meaning it affects the RPI/CPI more.

46. Current Data You can tell a lot from an RPI and CPI inflation graph, such as wherever there is a sudden extreme rise in inflation percentage, we know there is a boom period, this is because during a boom period consumer income rises and therefore demand for products increase. As there is only a limited supply, suppliers increase their prices to gain an better profit and everything becomes more and more expensive. However shortly following a boom, there is usually a rapid decline in inflation growth (otherwise known as a recession).This is down to prices rising too much in the boom meaning no one can afford to buy them anymore and companies make hardly any profit and have to close down, meaning an increase in unemployment and a decrease in incomes for most people and therefore a decrease in demand. Remaining companies then need to lower their prices to attract customers to buy their goods and services in a hope to make a profit, therefore inflation growth decreases during this time. This graph does however show a gradual trend increase in inflation over time (even though there are many fluctuations), this is promising for the Governments 2% inflation growth yearly target

47. Economics By everyone's favourite Bulgarian

49. When aggregate demand is well below the productive potential of the economy (so called potential GDP) then a negative output gap exists. In simple terms, current output and spending is well below what the economy could normally sustain. In this situation there is spare capacity in the economy.