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Economics for Business: Economic Factors that Led to the Recession of 2008/2009 - Assignment Example

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The author of the paper identifies the economic factors that led to the most recent recession of 2008/2009, compares the recessions of 1979 and the recessions of 1981. The author also examines international trade as significant to the process for globalization.  …
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Economics for Business: Economic Factors that Led to the Recession of 2008/2009
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Download file to see previous pages Profit is obtained by subtracting the total revenue from the total costs at the maximum is at five units per put 625- 250 = 375 d)The economic profit for the company is positive, then the firms' decision is optimal. That is its price and output yield a profit larger than any alternatives prices that output. The type of market that this firm is operating on is oligopoly (BBC Economy track, 2010). Oligopoly prices are expected to be more stable than those in a mono politically competitive market. This is evident in the graph that results in long run oligopoly market equilibrium of a Price/output solution that is identical to that of a competitive market. 2) a) Economic factors that led to the most recent recession of 2008/2009 include Main causes if recession Credit crunch in the U.K – the U.K mortgage lending caused very serious problems for the Northern Rock. It had a high percentage of risky loans. When the subprime crisis hit, the Northern Rock could no longer raise enough funds for the usual capital market. It had to borrow emergency funds from the Bank of England. As a result of the credit crunch, the U.K saw a change in the mortgage market. The mortgage started to become expensive. Falling of house prices in the U.K - since getting mortgages became difficult, the demand for houses started to fall. This was also related credit crunch. Cost-push inflation restricting income and reducing disposable income. The fall in confidence of the financial sector that caused lower confidence amongst the real economy. Supply-side shock – in this case, higher oil prices would increase the cost of production and the effect would lead to a short-run aggregate supply to shift to the left. Demand slide shock: the factors include higher interest rates which lead to a reduction in investment and borrowing. The fall of real wages, the reduction of consumer confidence, a period of deflation as falling of prices often encourage the delay of spending. b) Comparison to the other two recession The 1979- 1981 recession was caused by the following economic factors: High strength of the pound (British currency) and this made the price of exports became more expensive thereby having a reduced AD (Aggregate Demand). This recession particularly affected British manufacturing (Bank of England, 2012). The high-interest rate was another factor.  ...Download file to see next pagesRead More
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