Instead of worrying over news reports about the state of the U.S. economy, consider taking steps to prepare yourself for a recession. For example:
#Plan for the worst case scenario. It may be a frightening thought to consider losing your job or having a loved one come down with a serious illness, but you need to have a plan that will allow your family to make it through this difficult time.
#Cut unnecessary expenses. Part of preparing for the worst involves having an emergency fund to help your family though hard times. If you don’t have money saved, consider cutting restaurant meals, expensive entertainment, or other luxury items from your household budget and putting the extra money into your rainy day savings account.
#Monitor your investments. During a recession, stock prices can change dramatically. If you have invested in stocks as part of your retirement savings, try to diversify to reduce the risk to your portfolio.
#Avoid taking on new debts. If you’re concerned about a possible recession, try to put off the purchase of new items as long as you can. If you already have a car that’s paid for and provides reliable transportation, for example, think twice before taking out a loan for a new one
Wednesday, December 10, 2008
Understanding the Causes of Economic Recession
It can be difficult to predict the causes of economic recession. However, many economists believe the Index of Leading Indicators may be a useful tool for determining when a recession is coming. Factors in this measurement of the country’s financial health include:
#Weekly hours worked by manufacturing workers on average
#Average number of initial applications for unemployment insurance claims
#S&P 500-stock index
#Inflation-adjusted monetary supply
#Spread between long and short interest rates
#Pessimistic consumer sentiment
#Amount of manufacturer orders for consumer goods and materials
#Speed of delivery of new merchandise to vendors from suppliers
#New orders for capital goods unrelated to defense
#Number of new building permits for residential buildings
The Index of Leading Indicators is not foolproof, however. Although it predicted each of the seven recessions between 1959 and 2001, it also forecasted five recessions that failed to materialize.
Many people believe that recessions are a natural part of the capitalist economic system. In fact, there are those who think recessions help “clean the fat” from businesses that are failing to operate within their means. By this logic, recessions help pave the way for periods of economic expansion
#Weekly hours worked by manufacturing workers on average
#Average number of initial applications for unemployment insurance claims
#S&P 500-stock index
#Inflation-adjusted monetary supply
#Spread between long and short interest rates
#Pessimistic consumer sentiment
#Amount of manufacturer orders for consumer goods and materials
#Speed of delivery of new merchandise to vendors from suppliers
#New orders for capital goods unrelated to defense
#Number of new building permits for residential buildings
The Index of Leading Indicators is not foolproof, however. Although it predicted each of the seven recessions between 1959 and 2001, it also forecasted five recessions that failed to materialize.
Many people believe that recessions are a natural part of the capitalist economic system. In fact, there are those who think recessions help “clean the fat” from businesses that are failing to operate within their means. By this logic, recessions help pave the way for periods of economic expansion
The Great Depression
What Was The Great Depression?
The Great Depression of 1929 was a worldwide economic depression that lasted approximately 10 years. On October 24, 1929, “Black Thursday” when 12.9 million shares of stock were sold in one day, triple the normal amount prices fell 15 - 20%, causing a stock market crash.
Unemployment During The Great Depression
By 1933, the height of the depression, unemployment had risen from 3% to 25% of the nation’s workforce. Wages for those who still had jobs fell 42%. GDP was cut in half, from $103 to $55 billion. This was partly because of deflation, where prices fell 10% per year. By 1933, world trade plummeted 65% as measured in dollars and 25% in total number of units.The Depression caused many farmers to lose their farms. At the same time, years of erosion and a drought created the “Dust Bowl” in the Midwest, where no crops could grow. Thousands of these farmers and other unemployed workers traveled to California to find work. Many ended up living as homeless “hobos” or in shantytowns called “Hoovervilles”, named after then-President Herbert Hoover.
What Caused the Great Depression of 1929?
According to Ben Bernanke, the current Chairman of the Federal Reserve, the stock market crash and the subsequent Depression were actually caused by tight monetary policies that the Federal Reserve instituted at that time.Bernanke relates several key actions by the Federal Reserve: The Fed began raising the Fed Funds rate in the spring of 1928, and kept raising them through a recession that began in August 1929. This led to the stock market crash in October 1929. When the stock market crashed, investors turned to the currency markets. At that time, dollars were backed by gold held by the U.S. Government. Speculators began selling dollars for gold in September 1931, which caused a run on the dollar. The Fed raised interest rates again to try and preserve the value of the dollar. This further restricted the availability of money for businesses, causing more bankruptcies. The Fed did not increase the supply of money to combat deflation. As investors withdrew all their dollars from banks, the banks failed, causing more panic. The Fed ignored the banks' plight, thus destroying any remaining consumers’ confidence in banks. Most people withdrew their cash and put it under the mattress, which further decreased the money supply. Bottom line...thanks to the Fed, there was just not enough money in circulation to get the economy going again. Instead of pumping money into the economy, and increasing the money supply, the Fed allowed the money supply to fall 30%.
What Ended the Great Depression?
In 1932, Franklin Delano Roosevelt was elected President based on his promises to create Federal Government programs to end the Great Depression. Within 100 days the “New Deal” was signed into law. This created 42 new agencies designed to create jobs, allow unionization, and provide unemployment insurance. Many of these programs, such as Social Security, the SEC, and FDIC (Federal Deposit Insurance Corporation) are still here today, helping to safeguard the economy.However, the extent of the Great Depression was so great that government programs alone could not end it. Unemployment remained in the double-digits until 1941, when the U.S. entry into World War II created defense-related jobs.
Could a Great Depression Happen Again?
A Depression on the scale of that in 1929 could not happen exactly the way it did before. Central banks around the world, including the U.S. Federal Reserve, are so much more aware of the importance of monetary policy in regulating the economy.However, there is only so much monetary policy can do to offset fiscal policy. The incredible size of the U.S. current account deficit, and the national debt, could possibly trigger an economic panic that would be difficult for monetary policy to affect. No one really knows, since the current U.S. debt level is unprecedented.The U.S. economy has been living on borrowed money for a long time, and the economy is experiencing the unwinding of that excess currently. However, it probably won't be enough to disarm the global economy's growth, so a worldwide depression is unlikely. It could trigger a global recession in 2008 or 2009. Although the U.S. economy may see another quarter of negative GDP growth, the global economy may not even slow that much, thanks to growth in China and other emerging markets
The best course of action is to cut down on your own credit, rebalance your retirement portfolio to be more defensive, and make sure you are living within a balanced budget.
The Great Depression of 1929 was a worldwide economic depression that lasted approximately 10 years. On October 24, 1929, “Black Thursday” when 12.9 million shares of stock were sold in one day, triple the normal amount prices fell 15 - 20%, causing a stock market crash.
Unemployment During The Great Depression
By 1933, the height of the depression, unemployment had risen from 3% to 25% of the nation’s workforce. Wages for those who still had jobs fell 42%. GDP was cut in half, from $103 to $55 billion. This was partly because of deflation, where prices fell 10% per year. By 1933, world trade plummeted 65% as measured in dollars and 25% in total number of units.The Depression caused many farmers to lose their farms. At the same time, years of erosion and a drought created the “Dust Bowl” in the Midwest, where no crops could grow. Thousands of these farmers and other unemployed workers traveled to California to find work. Many ended up living as homeless “hobos” or in shantytowns called “Hoovervilles”, named after then-President Herbert Hoover.
What Caused the Great Depression of 1929?
According to Ben Bernanke, the current Chairman of the Federal Reserve, the stock market crash and the subsequent Depression were actually caused by tight monetary policies that the Federal Reserve instituted at that time.Bernanke relates several key actions by the Federal Reserve: The Fed began raising the Fed Funds rate in the spring of 1928, and kept raising them through a recession that began in August 1929. This led to the stock market crash in October 1929. When the stock market crashed, investors turned to the currency markets. At that time, dollars were backed by gold held by the U.S. Government. Speculators began selling dollars for gold in September 1931, which caused a run on the dollar. The Fed raised interest rates again to try and preserve the value of the dollar. This further restricted the availability of money for businesses, causing more bankruptcies. The Fed did not increase the supply of money to combat deflation. As investors withdrew all their dollars from banks, the banks failed, causing more panic. The Fed ignored the banks' plight, thus destroying any remaining consumers’ confidence in banks. Most people withdrew their cash and put it under the mattress, which further decreased the money supply. Bottom line...thanks to the Fed, there was just not enough money in circulation to get the economy going again. Instead of pumping money into the economy, and increasing the money supply, the Fed allowed the money supply to fall 30%.
What Ended the Great Depression?
In 1932, Franklin Delano Roosevelt was elected President based on his promises to create Federal Government programs to end the Great Depression. Within 100 days the “New Deal” was signed into law. This created 42 new agencies designed to create jobs, allow unionization, and provide unemployment insurance. Many of these programs, such as Social Security, the SEC, and FDIC (Federal Deposit Insurance Corporation) are still here today, helping to safeguard the economy.However, the extent of the Great Depression was so great that government programs alone could not end it. Unemployment remained in the double-digits until 1941, when the U.S. entry into World War II created defense-related jobs.
Could a Great Depression Happen Again?
A Depression on the scale of that in 1929 could not happen exactly the way it did before. Central banks around the world, including the U.S. Federal Reserve, are so much more aware of the importance of monetary policy in regulating the economy.However, there is only so much monetary policy can do to offset fiscal policy. The incredible size of the U.S. current account deficit, and the national debt, could possibly trigger an economic panic that would be difficult for monetary policy to affect. No one really knows, since the current U.S. debt level is unprecedented.The U.S. economy has been living on borrowed money for a long time, and the economy is experiencing the unwinding of that excess currently. However, it probably won't be enough to disarm the global economy's growth, so a worldwide depression is unlikely. It could trigger a global recession in 2008 or 2009. Although the U.S. economy may see another quarter of negative GDP growth, the global economy may not even slow that much, thanks to growth in China and other emerging markets
The best course of action is to cut down on your own credit, rebalance your retirement portfolio to be more defensive, and make sure you are living within a balanced budget.
History of Economic Recessions in The United States
This is a detailed history of economic recessions that have affected the United States economy.A recession is defined as two or more quarters of sustained negative GDP growth.
Late 2000's RecessionOCTOBER 2008 - CURRENT
In 2008, the possibility of an economic crisis was suggested by several important indicators of economic downturn worldwide. These included high oil prices, which led to both high food prices (due to a dependence of food production on oil production) and global inflation; a substantial credit crisis leading to the bankruptcy of several large and well established investment banks; increased unemployment; and a global recession developed. President: George W. Bush (R) [2001-2009]
Early 2000's RecessionAPRIL 2000 - OCTOBER 2001 (18 months)
The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. President: William J. Clinton (D) [1993-2001] President: George W. Bush (R) [2001-2009]
Early 1990's RecessionJULY 1990 - APRIL 1991 (10 months)
Industrial production and manufacturing-trade sales decreased in early 1991. President: George Bush (R)
Early 1980's RecessionAPRIL 1980 - OCTOBER 1982 (30 months)
The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. President: Jimmy Carter (D) [1977-1981] President: Ronald Reagan (R) [1981-1989]
Oil Crisis of 1973APRIL 1973 - APRIL 1975 (24 months)
A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War lead to stagflation in the United States. President: Richard Nixon (R)
Recession of 1957JULY 1957 - APRIL 1958 (10 months)
Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. President: Dwight Eisenhower (R)
Recession of 1953APRIL 1953 - APRIL 1954 (12 months)
After a post-Korean War inflationary period, more funds were transferred into National security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. President: Dwight Eisenhower (R)
Recession of 1947APRIL 1947 - OCTOBER 1947 (12 months)
Stock markets crashed worldwide, and a banking collapse took place in the United States. This sparked a global downturn, including a second, more minor recession in the United States, the Recession of 1937. President: Harry S. Truman (D)
The Great Depression1929 - 1939 (120 months)
The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark in how far the world's economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as "Black Tuesday". The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939. President: Herbert Hoover (R) [1929-1933] Franklin D. Roosevelt (D) [1933-1945]
Post-WWI Recession1918 - 1921
Severe hyperinflation in Europe took place over production in North America. It was a brief, but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. President: Woodrow Wilson (D)
Panic of 19071907 - 1908
A run on Knickerbocker Trust Company deposits on October 22, 1907 set events in motion that would lead to a severe monetary contraction. President: Theodore Roosevelt (R)
Panic of 18931893 - 1896
Failure of the United States Reading Railroad and withdrawal of European investment lead to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. President: Grover Cleveland (D)
Panic of 18731873 - 1879
Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which bursted the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. President: Ulysses S. Grant (R)
Panic of 18571857 - 1860
Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. President: James Buchanan (D)
Panic of 18371837 - 1843
A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). President: Martin Van Buren (D)
Panic of 18191819 - 1824
The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. President: James Monroe (I)
Depression of 18071807 - 1814
The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England. President: Thomas Jefferson - James Madison
Panic of 17971793 - 1800
The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing disflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. President: George Washington
SourcesU.S. Department of Commerce: Bureau of Economic
Late 2000's RecessionOCTOBER 2008 - CURRENT
In 2008, the possibility of an economic crisis was suggested by several important indicators of economic downturn worldwide. These included high oil prices, which led to both high food prices (due to a dependence of food production on oil production) and global inflation; a substantial credit crisis leading to the bankruptcy of several large and well established investment banks; increased unemployment; and a global recession developed. President: George W. Bush (R) [2001-2009]
Early 2000's RecessionAPRIL 2000 - OCTOBER 2001 (18 months)
The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. President: William J. Clinton (D) [1993-2001] President: George W. Bush (R) [2001-2009]
Early 1990's RecessionJULY 1990 - APRIL 1991 (10 months)
Industrial production and manufacturing-trade sales decreased in early 1991. President: George Bush (R)
Early 1980's RecessionAPRIL 1980 - OCTOBER 1982 (30 months)
The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation lead to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. President: Jimmy Carter (D) [1977-1981] President: Ronald Reagan (R) [1981-1989]
Oil Crisis of 1973APRIL 1973 - APRIL 1975 (24 months)
A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War lead to stagflation in the United States. President: Richard Nixon (R)
Recession of 1957JULY 1957 - APRIL 1958 (10 months)
Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. President: Dwight Eisenhower (R)
Recession of 1953APRIL 1953 - APRIL 1954 (12 months)
After a post-Korean War inflationary period, more funds were transferred into National security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. President: Dwight Eisenhower (R)
Recession of 1947APRIL 1947 - OCTOBER 1947 (12 months)
Stock markets crashed worldwide, and a banking collapse took place in the United States. This sparked a global downturn, including a second, more minor recession in the United States, the Recession of 1937. President: Harry S. Truman (D)
The Great Depression1929 - 1939 (120 months)
The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark in how far the world's economy can fall. The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as "Black Tuesday". The end of the depression in the U.S. is associated with the onset of the war economy of World War II, beginning around 1939. President: Herbert Hoover (R) [1929-1933] Franklin D. Roosevelt (D) [1933-1945]
Post-WWI Recession1918 - 1921
Severe hyperinflation in Europe took place over production in North America. It was a brief, but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. President: Woodrow Wilson (D)
Panic of 19071907 - 1908
A run on Knickerbocker Trust Company deposits on October 22, 1907 set events in motion that would lead to a severe monetary contraction. President: Theodore Roosevelt (R)
Panic of 18931893 - 1896
Failure of the United States Reading Railroad and withdrawal of European investment lead to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. President: Grover Cleveland (D)
Panic of 18731873 - 1879
Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which bursted the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. President: Ulysses S. Grant (R)
Panic of 18571857 - 1860
Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. President: James Buchanan (D)
Panic of 18371837 - 1843
A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). President: Martin Van Buren (D)
Panic of 18191819 - 1824
The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. President: James Monroe (I)
Depression of 18071807 - 1814
The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England. President: Thomas Jefferson - James Madison
Panic of 17971793 - 1800
The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing disflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. President: George Washington
SourcesU.S. Department of Commerce: Bureau of Economic
Monday, December 8, 2008
What Is Recession? Recession Definition & Causes
What is a Recession?
In economics, the term recession is generally used to describe a situation in which a country's GDP, or gross domestic product, sustains a negative growth factor for at least 2 consecutive quarters. I say generally because recession can be defined differently by different economists. Just as there is an agency to define the measure of inflation; the official agency in charge of declaring that the economy is in a state of recession is the National Bureau of Economic Research (NBER). NBER's definition of recession is a bit more vague than the standard one that was described above; they define recession as a "significant decline in economic activity lasting more than a few months". For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year.
Causes of Economic Recession
This is another staunchly debated topic; but the general consensus is that a recession is primarily caused by the actions taken to control the money supply in the economy. The Federal Reserve is responsible for maintaining an ideal balance between money supply, interest rates, and inflation. When the Fed loses balance in this equation, the economy can spiral out of control, forcing it to correct itself. This is precisely what we have seen in 2007, where the Feds monetary policy of injecting tremendous amounts of money supply into the money market has kept interest rates lower while inflation continues to rise. This, coupled with relaxed policies in lending practices making it easy to borrow money; the economic activity became unsustainable resulting in the economy coming to a near halt. It is also said that recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war. However, these are mostly short term in nature and tend to correct themselves in a quicker manner than the full blown recessions that have occurred in the past.Effects of a RecessionAn economic recession can usually be spotted before it happens. There is a tendency to see the economic landscape changing in quarters preceding the actual onset. While the growth in GDP will still be present, it will show signs of sputtering and you will see higher levels of unemployment, decline in housing prices, decline in the stock market, and business expansion plans being put on hold. When the economy sees extended periods of economic recession, the economy can be referred to as being in an economic depression.
Source:Recession.Org
In economics, the term recession is generally used to describe a situation in which a country's GDP, or gross domestic product, sustains a negative growth factor for at least 2 consecutive quarters. I say generally because recession can be defined differently by different economists. Just as there is an agency to define the measure of inflation; the official agency in charge of declaring that the economy is in a state of recession is the National Bureau of Economic Research (NBER). NBER's definition of recession is a bit more vague than the standard one that was described above; they define recession as a "significant decline in economic activity lasting more than a few months". For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year.
Causes of Economic Recession
This is another staunchly debated topic; but the general consensus is that a recession is primarily caused by the actions taken to control the money supply in the economy. The Federal Reserve is responsible for maintaining an ideal balance between money supply, interest rates, and inflation. When the Fed loses balance in this equation, the economy can spiral out of control, forcing it to correct itself. This is precisely what we have seen in 2007, where the Feds monetary policy of injecting tremendous amounts of money supply into the money market has kept interest rates lower while inflation continues to rise. This, coupled with relaxed policies in lending practices making it easy to borrow money; the economic activity became unsustainable resulting in the economy coming to a near halt. It is also said that recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war. However, these are mostly short term in nature and tend to correct themselves in a quicker manner than the full blown recessions that have occurred in the past.Effects of a RecessionAn economic recession can usually be spotted before it happens. There is a tendency to see the economic landscape changing in quarters preceding the actual onset. While the growth in GDP will still be present, it will show signs of sputtering and you will see higher levels of unemployment, decline in housing prices, decline in the stock market, and business expansion plans being put on hold. When the economy sees extended periods of economic recession, the economy can be referred to as being in an economic depression.
Source:Recession.Org
What is Macroeconomics?By Mike Moffatt,
The Economist's Dictionary of Economics defines Macroeconomics as "The study of whole economic systems aggregating over the functioning of individual economic units. It is primarily concerned with variables which follow systematic and predictable paths of behaviour and can be analysed independently of the decisions of the many agents who determine their level. More specifically, it is a study of national economies and the determination of national income."
The website Tutor2U answers the question "What is Macroeconomics" with the following response: "Macroeconomics considers the performance of the economy as a whole. Many macroeconomic issues appear in the press and on the evening news on a daily basis. When we study macroeconomics we are looking at topics such as economic growth; inflation; changes in employment and unemployment, our trade performance with other countries (i.e. the balance of payments) the relative success or failure of government economic policies and the decisions made by the Bank of England." Wikipedia states that "Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Macroeconomics can be used to analyse how best to influence policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments. "
The website Tutor2U answers the question "What is Macroeconomics" with the following response: "Macroeconomics considers the performance of the economy as a whole. Many macroeconomic issues appear in the press and on the evening news on a daily basis. When we study macroeconomics we are looking at topics such as economic growth; inflation; changes in employment and unemployment, our trade performance with other countries (i.e. the balance of payments) the relative success or failure of government economic policies and the decisions made by the Bank of England." Wikipedia states that "Macroeconomics is the study of the entire economy in terms of the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the general behavior of prices. Macroeconomics can be used to analyse how best to influence policy goals such as economic growth, price stability, full employment and the attainment of a sustainable balance of payments. "
Microeconomics
Microeconomics is a branch of economics that studies how individuals, households and firms and some states make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold. Microeconomics examines how these decisions and behaviours affect the supply and demand for goods and services, which determines prices; and how prices, in turn, determine the supply and demand of goods and services.[2][3]
Macroeconomics, on the other hand, involves the "sum total of economic activity, dealing with the issues of growth, inflation and unemployment, and with national economic policies relating to these issues"[2] and the effects of government actions (such as changing taxation levels) on them.[4] Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon 'microfoundations' — i.e. based upon basic assumptions about micro-level behaviour.
One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficient results, as well as describing the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertainty and economic applications of game theory. Also considered is the elasticity of products within the market system.
source:wikipaedia
Macroeconomics, on the other hand, involves the "sum total of economic activity, dealing with the issues of growth, inflation and unemployment, and with national economic policies relating to these issues"[2] and the effects of government actions (such as changing taxation levels) on them.[4] Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon 'microfoundations' — i.e. based upon basic assumptions about micro-level behaviour.
One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficient results, as well as describing the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertainty and economic applications of game theory. Also considered is the elasticity of products within the market system.
source:wikipaedia
Sunday, December 7, 2008
What Is Economics?
Economics is the study of how people choose to use resources.
Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services.
Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government.
Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don't improve their well-being.
In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor. The most famous book in economics is the Inquiry into the Nature and Causes of The Wealth of Nations written by Adam Smith, and published in 1776 in Scotland.
Although the behavior of individuals is important, economics also addresses the collective behavior of businesses and industries, governments and countries, and the globe as a whole. Microeconomics starts by thinking about how individuals make decisions. Macroeconomics considers aggregate outcomes. The two points of view are essential in understanding most economic phenomena.
The list of fields in economics illustrates the scope of economic thought.
Definitions of Economics from Historic Textbooks
"Economics is the study of people in the ordinary business of life."-- Alfred Marshall, Principles of economics; an introductory volume (London: Macmillan, 1890)
"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses."-- Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: MacMillan, 1932)
Economics is the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people."-- Paul A. Samuelson, Economics (New York: McGraw-Hill, 1948)
About the American Economic Association
The Association has about 18,000 members from all over the world, most of whom are working economists in academia, business, government, international and not-for-profit agencies. It was founded in 1885 to promote the study of economics from all points of view. "The Association as such will take no partisan attitude, nor will it commit its members to any position on practical economic questions." The Association publishes three journals and will be adding four more. About 4,000 libraries subscribe to the journals and individual members receive journals with membership. The Association also produces ECONlit, a database to identify and locate books and articles in economics. The annual meeting of the Association, usually in early January, attracts about eight thousand economists who present their work and discuss current economic issues. The Association recognizes with awards the achievement of a small number of economists who have made outstanding achievements in the advance of economic thought. The Association promotes the market for economists by helping employers find applicants and vice versa. The Association is headquartered in Nashville, Tennessee.
Source Article: Sponsored by theAmerican Economic Association
Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services.
Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government.
Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don't improve their well-being.
In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase overtime, and to evaluate the well-being of the rich and the poor. The most famous book in economics is the Inquiry into the Nature and Causes of The Wealth of Nations written by Adam Smith, and published in 1776 in Scotland.
Although the behavior of individuals is important, economics also addresses the collective behavior of businesses and industries, governments and countries, and the globe as a whole. Microeconomics starts by thinking about how individuals make decisions. Macroeconomics considers aggregate outcomes. The two points of view are essential in understanding most economic phenomena.
The list of fields in economics illustrates the scope of economic thought.
Definitions of Economics from Historic Textbooks
"Economics is the study of people in the ordinary business of life."-- Alfred Marshall, Principles of economics; an introductory volume (London: Macmillan, 1890)
"Economics is the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses."-- Lionel Robbins, An Essay on the Nature and Significance of Economic Science (London: MacMillan, 1932)
Economics is the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people."-- Paul A. Samuelson, Economics (New York: McGraw-Hill, 1948)
About the American Economic Association
The Association has about 18,000 members from all over the world, most of whom are working economists in academia, business, government, international and not-for-profit agencies. It was founded in 1885 to promote the study of economics from all points of view. "The Association as such will take no partisan attitude, nor will it commit its members to any position on practical economic questions." The Association publishes three journals and will be adding four more. About 4,000 libraries subscribe to the journals and individual members receive journals with membership. The Association also produces ECONlit, a database to identify and locate books and articles in economics. The annual meeting of the Association, usually in early January, attracts about eight thousand economists who present their work and discuss current economic issues. The Association recognizes with awards the achievement of a small number of economists who have made outstanding achievements in the advance of economic thought. The Association promotes the market for economists by helping employers find applicants and vice versa. The Association is headquartered in Nashville, Tennessee.
Source Article: Sponsored by theAmerican Economic Association
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