Business Cycles: Phases, Indicators, Measures, Economic Evolution, Essay

Length: 4 pages Sources: 2 Subject: Economics Type: Essay Paper: #53590777 Related Topics: Economists, Keynesian Theory, Keynesian Economics, Measure For Measure
Excerpt from Essay :

Business Cycles: Phases, Indicators, Measures, Economic Evolution, Outlooks

is currently recovering from its worst recession in over 25 years. Most economists consider the rapid rise in housing prices (the bubble) and the subsequent collapse in that market to be the primary cause of the recession. Explain what housing market circumstances were responsible for the collapse of that market.

Observers attribute the 2001-2006 housing bubble to "everyone from home buyers to Wall Street, mortgage brokers to Alan Greenspan." (FactCheck.org.)

Causes were five-fold -- and all reducible to the consumer:

REALTORS encouraged people to buy (and sell)

Builders built more homes than were needed. This was fed by the media's emphasis on the American myth of each American needing a home to call himself. There was a home-buying mania.

Lenders created poorly designed loan products to fill demand. Economic derivatives, specially the "credit-default swap" were used irresponsibly in that swaps and other derivatives were sold and resold in ways that covered the amount of debt financial institutions were assuming. In the last stages of the housing boom, credit-default swaps in reference to mortgage-backed bonds were themselves bundled into financial instruments called collateralized debt obligations where buyers were essentially placing bets on whether bonds held by another would profit or fail. Risk became so great that in 2008, the Bank for International Settlements in Switzerland calculated that there was an approximate $680 trillion-worth value of derivatives across the globe up from $106 trillion in 2002. The derivatives had the reverse effect: intended to prevent doubt and uncertainty, they, instead, stoked insecurity and risk leading to Buffett's statement that derivatives, in the wrong hand, can be harmful (NY Times, 2012).

Borrowers took risky loans to get more houses. There were also historically low interest rates.

Houses were the only investment that escaped taxes. Buyers took opportunity of easy credit and excessively bid uo the prices of homes

Sellers sold at irrational prices (Century 21)

Fact.org painted a more detailed picture. Quoting the Economist, they said that the housign bubble was causative to "layered irresponsibility ... with hard-working homeowners and billionaire villains each playing a role." Other factors not listed above were:

The Federal Reserve, which slashed interest rates after the dot-com bubble burst, making credit cheap causign banks to be generous...

...

Economists classify macro-economic indicators as leading, lagging, or coincident. Define each classification and give two examples of each, relating them to the recession that began in 2007 and the recovery that is now under way.

An indicator is something that can be used to predict future economic patterns. Popular indicators include unemployment rates, housing starts, inflationary indexes and consumer confidence.

Indicators fall under one of three categories, each of which describes them:

1. Leading -- these indicate -- to some degree of accuracy -- coming economic event. An example is bond yields which are thought to be a good leading indicator of the stock market since bond trader's deal with speculation. Federal Reserve withholding of assets to bank results in fewer companies and fewer individuals being offered loans and therefore economic production will more likely suffer and there will be a rise in unemployment since money is scarce and few will be able to afford the short-term loans.

The Federal Reserve's reducing short- and long-term interest rates is another leading indicator since people are more liberal in borrowing when it becomes cheaper to do so. Result: People are more willing to buy goods and services and companies are more able to hire others. Production is boosted leading to greater availability of goods and cheaper prices (since there is…

Sources Used in Documents:

Sources

FactCheck.org. "Who Caused the Economic Crisis?."

http://www.factcheck.org/elections-2008/who_caused_the_economic_crisis.html

Investopeida. What are leading, lagging and coincident indicators? http://www.investopedia.com/ask/answers/177.asp#ixzz2NQavlUvd

NY TImes,( 2012) Derivatives http://topics.nytimes.com/top/reference/timestopics/subjects/d/derivatives/index.html
Century 21 Hindsight Shows the Real Cause of the Housing Market Crash http://www.manausa.com/housing-market-crash/#ixzz2NQf2TifD
The Guardian. (2012/jul/05/) PFI will ultimately cost £300bn http://www.guardian.co.uk/politics/2012/jul/05/pfi-cost-300bn


Cite this Document:

"Business Cycles Phases Indicators Measures Economic Evolution " (2013, March 12) Retrieved January 23, 2022, from
https://www.paperdue.com/essay/business-cycles-phases-indicators-measures-102990

"Business Cycles Phases Indicators Measures Economic Evolution " 12 March 2013. Web.23 January. 2022. <
https://www.paperdue.com/essay/business-cycles-phases-indicators-measures-102990>

"Business Cycles Phases Indicators Measures Economic Evolution ", 12 March 2013, Accessed.23 January. 2022,
https://www.paperdue.com/essay/business-cycles-phases-indicators-measures-102990

Related Documents
Economic Model for Monopoly Analysis
Words: 14390 Length: 30 Pages Topic: Business Paper #: 47374384

The deal was immediately criticized as anti-competitive by William Kennard, the chairman of the Federal Communications Commission, and by the Communications Workers of America, which represents some workers at both of the merged companies. But neither government regulators nor union bureaucrats will have the slightest impact on the latest merger. They have neither the power nor the desire to oppose the plans of the giant telecommunications monopolies. More substantial opposition

Political or Economic Globalization Between
Words: 3336 Length: 10 Pages Topic: Economics Paper #: 79989807

(Chandrasekhar and Ghosh, 2005) Chandrasekhar and Ghosh state that the macroeconomic policy in China resulted in macroeconomic mechanisms that "differed substantially from those in predominantly market-driven economies. These differences relate to the availability of monetary or fiscal levers of the kind available in market economies, to the nature of the institutionally determined transmission mechanisms and to the outcomes of what appear to be similar policies. Only inasmuch as "economic reform"

Investment and Economic Development
Words: 3216 Length: 10 Pages Topic: Economics Paper #: 87675139

Private Sector Investment and Economic Development Investment and economic development The Role of Private Sector investment in Economic Development In the past few decades there has been overwhelming support for growth and development rooted in private investments and market-oriented strategies. A move from public sector driven growth has come as result of the need to reduce the widening gap in the balance of payment account, increasing public debt, rising inflation rate, growing foreign

Use of Life Cycle Costing Management Technique at Glazer's, Inc.
Words: 4601 Length: 17 Pages Topic: Business Paper #: 89082371

Management Rationale for the use of life cycle Management at Glazers LCM (Life Cycle Management) is a framework which manages and scrutinises the performance and sustainability of services and goods. This framework aims to achieve the long-term objectives of the business, and gives less stress on the short-term objectives. For getting a more sustainable value chain, organizations are making use of this framework, which would in turn improve their economic and

Central Banks What Criteria Are,
Words: 10788 Length: 35 Pages Topic: Economics Paper #: 39513855

Under the arrangement, moreover, a country with efficient production and a favored competitive position (including as enhanced by new capital goods) is rewarded with rising income and reduced unemployment. No grand scheme of state or international planning and direct control is required. Exchange rates are for the most part fixed under the classical gold-flows mechanisms (say, $/£ const. within fixed limits), as stated, and adjustments to trade imbalances

Financial Analysis - Filippo Fochi
Words: 3784 Length: 14 Pages Topic: Economics Paper #: 21925845

For both debt ratios, the lower their values are the more conservative the company is, choosing to finance its operations/investments from internal sources. However, such a company may miss out on growth and investment opportunities. It is recommended for companies not to finance more than 50% of their capital via external debt. The debt-to-equity is superior to the recommended values, indication a much higher proportion of equity financing via external debt.