Econ assignment 4 - GDP and government policies PDF

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GDP and government policies...

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Econ assignment 4

Date 2006-01-01 2007-01-01 2008-01-01 2009-01-01 2010-01-01 2011-01-01 2012-01-01 2013-01-01 2014-01-01

(X-M) -0.08 0.58 1.11 1.19 -0.46 -0.02 0.08 0.29 -0.16

C

G 2.04 1.50 -0.23 -1.08 1.32 1.55 1.01 1.00 1.95

I 0.29 0.30 0.54 0.64 0.02 -0.65 -0.38 -0.56 -0.12

Real GDP 0.42 -0.61 -1.71 -3.52 1.66 0.73 1.52 0.95 0.90

2.7 1.8 -0.3 -2.8 2.5 1.6 2.2 1.7 2.6

In the above graph, from 2006 to 2014 the real gdp has fluctuated from 3% in 2006 to -3% in 2009, which was mainly caused by the financial recession. From 2007-2009, the overall gdp has decreased because the change in real gdp has declined in this period. The 4 contributions to gdp has constantly followed the real gdp trend line and has been in correlation along with it, however government spending and net exports have always been in a constant line along 0% change line and usually away from the other contribution factors, this is because if consumption and investment is low, the government will intervene and increase spending and also make international trade easier by removing barriers to entry so that real gdp doesn’t get affected too much. Looking at the data, the summation of all 4 contribution factors %change adds up approximately to the %change of real gdp. Observing the 2008-2009 period, the 4 contribution factors were most volatile here due to the financial recession. Investment and consumption were low here being at -3.5% and -1% respectively, due to the recession as people reduced consumption due to the economic conditions where jobs were low and inflow of money into the economy was reduced. This is the period that government spending and net exports were higher, in an attempt to bring up the real gdp. After the recovery phase occurred in 2010, consumption and investment had gone positive whereas government spending and net exports went negative because the real gdp was now balanced and money was flowing back into the economy. It can be seen that during the crisis, the government fiscal policy was expansionary during the crisis, where they increased government spending by 0.5%+ in 2008 and 2009 which can be seen in the graph....