A10.Recession.03Jun

8/6/2019 A10.Recession.03Jun

http://slidepdf.com/reader/full/a10recession03jun 1/5

Introduction:

Recession the hottest topic in the global economy has a serious impact on Ireland as

well. The Government of Ireland has announced that the economy was in recession stage in

September 2008. The following months after the official announcement, unemployment chart

was rising rapidly. In the entire European Union the first country to get effected by recession

is Ireland. The recession which occurred at this period is also known as double-dip recession.

In January 2009 the people claiming unemployment benefit has almost reached 326,000. Till

2007 the economy of Irish was so good, but everything was change when global financial

crisis hit the world, Irish republic is being hit worse by recession in the period of 2010.

In this report we will be briefly describing what recession is and what all the factors

that explains a country is in recession and the double-dip recession is also explained which

Ireland encountered in the second quarter of 2010. Various factors affecting the recession are

also discussed in short. The Keynesian style stimulus package and factors involved in that

package which affects the economy of Ireland are discussed. The most important tool for managing the aggregate demand is monetary policy and it has been researched how it affects

the economy of Ireland.

Successful operation of monetary policy depends on the financial markets of the Irish

economy, since the economy of Ireland is in the period of recession it is necessary for the

monetary policy to be successful by boosting the financial market which in turn increase the

number of opportunities and unemployment rate will get reduced helping to recovering from

recession.

Double-dip Recession:When the GDP of the country showed a growth sliding towards the negative side after

a small period of time or a quarter of financial year which was in the positive, then such type

of recession is called Double-dip recession.

Recession:

The recession can be explained in more economical way as the contraction of the

global business cycle. The factors of an economy which are affected due to recession are

GDP (Gross Domestic Product) will go down, unemployment will be very high at this period

of time, there will less spending overall, business profits will have a negative value in the

chart during the period of recession, inflation rate will fall down as well. The two main

reasons for the cause of recession are 1) Adverse supply shock and 2) A crack in the

employment bubble. A recession can be identified by looking at the GDP of the country, and

the double-dip recession can be identified if the GDP is plotted in a graph and if there are 2

negative GDP with some periods of positive GDP in between. The graph below shows the

double-dip recession.



Figure 1: GDP and GNP of Ireland where a double-dip recession can be noted. [Ref]

GDP and GNP of Ireland:

GDP stands for Gross Domestic Product and GNP stands for Gross National Product.

The economy of a country whether it is positive or negative can be determined by

using the values in GDP of that country. As mentioned in the above sections GDP of a

country is used to determine whether the economy is in recession or not. It is mathematically

the total value of a country¶s production of goods and service in dollars. Understanding of the

GDP value is as important because if someone says GDP is % higher or lower then value is

calculated by comparing with the previous year GDP.

GNP of a country is the market value of all the goods and services produced in a year by the residents of that country. It differs from GDP because, the market value of goods and

services of a particular geographical location is taken and GNP it is taken from ownership

and public.

Ireland is the first country of European Union to fall under recession. The government

announced in September 2010 that the economy of the country is under period of recession.

This announcement is made after properly evaluating the GDP values and GNP values of

Ireland. Technically it is proven that Ireland is jumping out from recession in the 1st

quarter

of 2010 by showing a rise in the GDP by 2.2%, but the behaviour of any economy is

unpredictable as it is the case with the economy of Ireland where the GDP has fallen by 1.2%

in the second quarter of 2010. This confirmed that the economy was not overcoming fromrecession, but it is falling further deep into recession. As GNP values do not include profit

obtained globally, those values will be saying the exact economic situation of a particular

country. The GNP value of Irish economy is also showing a downward rise by 0.3%

compared to first quarter. Evaluating all these values it forces to come to decision that the

Irish economy is under a period of recession. The figure gives a clear idea of how the GDP

and GNP of the Irish economy behave in many quarters,



Figure 2: GDP and GNP of Irish Economy which proved it is under recession [Ref ]

K eynesian Style Stimulus Package:

John Maynard Keynes an English Economist first had the ideas which were the

backbone of Keynesian Theory which is based on macroeconomic theory. This type of

stimulus is used to boost any of the sectors which influence the economy of that country in

the period of recession, by stimulating such sectors will boost the income and more

opportunities of jobs. This package mainly focuses on stimulating the sectors of aggregate

demand, and it is designed in a way that it will manage the growth rate of aggregate demand.

This stimulus package is mainly formed of four policies which are parts of aggregate

demand and when these factors are boosted well in the economy, they are

Monetary Policies

Exchange Rate Policy



Fiscal Policy

Deflationary policy

Provided the AS/AD model the economy of Irish is responding appropriately. This

model is one type of macroeconomic model that boost the price level and output. Such

boosting is explained with the relationship of aggregate supply and aggregate demand. The business cycle model by Keynesian can be demonstrated by AS/AD model.

Aggregate supply/demand graph

The events which can shift the curve to the right for the aggregate demand are

increase in consumer spending, intended inventory investment, government spending in

goods and services, transfer of payments to the people from the government, purchases of the

country¶s exports and decrease in the tax collected, imports from other countries. Shifting in

aggregate supply are decrease in wage hourly rates, increasing the capital stock and a

progress in the knowledge of transforming capital and labour into output effectively and also

an increase in population will help the curve shifted to right. When both aggregate demand

and supply curve are shifted to the right from the current position it refers to increase in the

GDP of the economy and also the price will go down.

Monetary Policy:

In this policy the three factors are mainly focused for their growth, three factors are

aggregate demand, money supply and price inflation. The researcher has selected growth of aggregate demand by changing the base rate of the interest. It is believed to be the most

powerful policy and weapon for the economy boost. Exchange rates are other area which has

small implications of the monetary policy. One of the main reasons for the recession in Irish

economy is unemployment and if that is the case the monetary policy can be effectively used

to deal with this type of macroeconomic problem, by lowering the interest rates through

monetary policy will stimulate the Irish economy.



The ultimate objective of this policy is stabilising the domestic prices which includes

exchange rate as well and the secondary objectives of this policy are level of external

reserves, exchange rates, and money market interest rates.

Aggregat e Expenditure:

The measure of national income is what aggregate expenditure. It is used to measure

the future direction of GDP of any economy. The factors involved in aggregate expenditure

are consumption expenditure, planned/unplanned investment, government spending, and net

exports.

While executing the monetary policy the factors of aggregate expenditure will also get

affected. Since the monetary policy is the variation of interest rates, it will affect the

government spending and net exports directly. The effect on investment and expenditure due

to the variation in interest rates is indirect.

Conclusion:

The recession period during the second quarter of 2010 had an adverse effect on the

economy of the Ireland. This recession period is referred ads double-dip recession because

the first quarter of 2010 there is a rise in GDP after the recession attacks during 2008 and

economist thought the period of recession is ending, but shockingly the second quarter

showed a fall in GDP by 1.2% which indicated the period of recession is getting extended.

Many measures and policies are implemented in order to overcome form this economic crisis.

Among various planning for boosting the economy, a stimulus package named Keynesian

style is introduced by the union understanding the failure of austerity budgets. Various

models have been discussed which helped in the formation of the Keynesian style stimulus

package. Aggregate demand is one of the factors of the policy where when properly varying

the parameters there will be a rise in the economy of the Ireland. Monetary policy which is

one among the policy where it is used for inflating the price value, money value and

aggregate demand which will increase the money spend and in turn the GDP is also

increased. On researching on various causes of economic recession, unemployment stands

out as the main reason for recession, which can be overcome by using the monetary policy to

reduce the interest rates and this increase the government spending on new projects and

opportunities rise and so unemployment rate slowly decreases.

References:

A10.Recession.03Jun

Documents

Transcript of A10.Recession.03Jun