Posts Tagged ‘economy’

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What’s the difference between a recession and a depression?

Wednesday, August 3rd, 2011

Before the 1930′s, recessions didn’t exist. This doesn’t mean that the economy behaved all that differently than it does now: up until that time, all economic declines were simply called depressions. But after the Great Depression, the term “recession” was coined to separate financial downturns on a lesser scale from those comparable to the catastrophe of the ’30′s.

The common definition of a recession is a drop in Gross Domestic Product (GDP) over two or more consecutive quarters. But economists tend to dislike this definition because it only looks  at GDP, and the two-quarter minimum means shorter recessions can go unnoticed. The National Bureau of Economic Research officially declares a recession after an in-depth analysis of financial information.

A depression is a recession in which the GDP declines by more than 10%, or one that lasts for more than three years. While recessions are pretty common, depressions are not. Only one developed country, Finland, has suffered a depression since the end of World War II. Depression has become a loaded term since the 1930′s catastrophe, and we want to make sure we use it only when the situation is appropriately grave.

What makes a stock price go up and down?

Tuesday, August 2nd, 2011

At the most basic level, stock prices are related to demand. When many people want to buy stock in a certain company, the stock price goes up, and when a lot of people are trying to get rid of a stock, its price goes down. But there are several other factors that go into a stock’s price.

If investors think a certain stock will do well, they will buy it and its price will go up; the reverse is also true. Stocks don’t exist in a vacuum, so their environment (both in general and specifically) affects their price. How is the company that owns the stock doing? Has it released positive earnings reports or a new product that shows promise? Investors also examine the social and economic climate in general – interest rates, political interest in certain businesses, and so on. Lastly, there’s the market itself to consider: during a bull market, everyone is buying stock, so stock prices in general tend to go up.

The stock market is tricky because it relies so much on anticipating things before they actually happen. A stock’s price will go up if it is popular, but investors may also buy that stock because they think it will become popular in the future. If enough people have this hunch, investing can become a self-fulfilling prophecy.

A Plutonomy is…

Tuesday, May 24th, 2011

A Plutonomy is an economy that is driven and controlled by an extremely wealthy minority. The word was coined in 2005 by an analyst at Citigroup. According to the laws of Plutonomics, the rich – because they spend a lot of money – make up such a large proportion of national spending that they mess with national spending statistics.

For example, if you asked everyone in the country how much they spend on designer clothes each year, and averaged that number, you would get an inaccurate picture of how well America is dressing. Why? Because one person spending $10,000 a year on couture while 9 other people spend $0 still makes it look like everyone is dropping $1,000 on their “collection” every year.

Laissez-faire is…

Monday, May 16th, 2011

In French, laissez-faire means “leave alone.” In finance, laissez-faire refers to an economy or industry that is left to work on its own without the government making rules about what people can and can’t do.

The Invisible Economy

Friday, March 11th, 2011

woman-sweeping.jpeg
(photo credit: mi55er)

How much is an hour of bathroom cleaning worth? What about 24 hours of child care? How much would you be paid to do these things in another person’s home?

How about in your own home?

According to a new international study, the “unpaid economy” - jobs like food shopping, washing up, and getting the kids to bed – would represent about a third of a nation’s total economy if it were paid.

The Organisation for Economic Cooperation and Development looked for signs of gender equality in this unpaid work, which was traditionally done only by women.

They found that even though men have come a long way toward helping out with these tasks, they’re still not likely to spend as much time on them as women do… even if they’re unemployed.

Bring THAT to your next macroeconomics class.

“Woooah There, Economy!”

Wednesday, March 2nd, 2011

apartment-buildings-china.jpeg
(photo credit: Jakob Montrasio)

China’s economy was on fire even as the rest of the world melted down into a financial puddle. But growth like that can’t last forever, and economic officials are starting to hose down the beast before it gets out of hand.

  • China’s Premier, Wen Jintao, is about to unveil the nation’s next 5-year economic plan, and it seems like there are some serious changes in store for the people of the People’s Republic.
  • Massive growth in the last 30 years brought heavy pollution, widespread corruption, and greater income inequality than ever before. And most of the growth relied on selling goods overseas, which left the local economy underdeveloped.
  • Premier Wen says that the government’s new economic goals are to avoid inflation and restructure the economy so that it doesn’t rely so much on exports. Policies will also try to address the inequality that resulted from billion-dollar industries springing up overnight.
  • Shifting resources to the local economy may mean slower growth, but it may also result in a lot more jobs, as the new service industry can employ more Chinese than factories can.

Facts & Figures

  • China is changing its annual GDP growth target from 7.5% to 7%
  • Over the past 30 years, the annual GDP growth rate has been around 9%
  • Between 2000 and 2009, employment grew by less than 1%

Best Quote

“We’ll never seek economic growth rate and big size at the price of environment. That would result in unsustainable growth featuring industrial overcapacity and intensive resource consumption.” – Premier Wen

What do you think?

If China devotes less of its economy to manufacturing and exporting cheap goods, do you think prices will rise here in the U.S.?

What the Unemployment Rate Really Means

Wednesday, March 2nd, 2011

When they say the U.S. unemployment rate is 9%, does that mean that only 9% of all possible American workers are out of a job?

Nope. The official unemployment rate doesn’t count people who have given up looking for a job. It also doesn’t include people considered “not in the labor force,” like students. And it definitely doesn’t tell you much about the millions of people who are working part-time but can’t find full-time work. (They’re called the “underemployed.”)

Contrary to popular belief, the unemployment rate has nothing to do with how many people are applying for or receiving unemployment benefits. The Bureau of Labor Statistics collects data by actually going out and asking people about their employment status.

Click the chart for Matt Berger’s explanation.

How do you fit into this chart?

How To: Survive A Conversation About The Economy This Week

Friday, January 7th, 2011

Looking for a job or a great deal on a condo? Well Ben Bernanke has some news for you! Our Treasury Secretary and the U.S. Senate got together today for a little chat about the state of the economy. Ben says:

“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold.”

close-up-cash.jpg
credit: kevindooley

The story:
Basically, Americans are starting to spend more money on everything besides real estate. That’s pretty good. But the unemployment rate is still 9.4%, which is bad. In fact, it may take up to five years for the job market to get back in shape.

The plan:
So what’s the plan? First of all, Bernanke practically begged lawmakers to get their rear in gear and rearrange the federal government’s disastrous spending habits (which have led to bigger and bigger budget deficits over the years). And then there’s… quantitative easing!

The important thing you don’t understand but easily could if you just read this:
Friends, it’s time you learned what quantitative easing is. Basically, it’s a way for the government to pump more money into the economy without causing crazy inflation, which would make all that new money worth a lot less.

Here’s how it works: the Treasury prints some money for itself, and uses that money to buy stuff (mostly bonds) from banks and financial institutions throughout the country. Bam! More money in the economy.

But flooding the economy with cash usually causes inflation (which means your dollar will buy less than it used to). So the Fed is working hard to keep the inflation rate below 2%. But you probably don’t need to get into all that detail in a friendly conversation.

So now you know.

Following a $10 bill across Middle America way more interesting than you would think.

Thursday, December 23rd, 2010

This guy followed a single $10 bill as it changed hands across Middle America. It’s amazing how far and how fast the bill traveled, but what’s more amazing is that people actually let this writer follow them around until they used the bill to pay for something. Which was sometimes days later.

Click to read: http://bit.ly/eO3hhB

Recession Benefits The Employed?

Tuesday, August 17th, 2010

Although the recession has produced a large number of the long-term unemployed, there are, ironically, some benefits for those who have been able to keep their jobs.

  • Though wages usually fall during economic downturns, this recession has seen a growth in salaries.
  • Some regions have been hit harder than others but areas in the central US are relatively unscathed.
  • Although blue collar jobs suffered most at the beginning of the recession, we’re currently seeing a downturn in white collar jobs instead.

Facts & Figures

  • Nearly 45% of unemployed workers today have been unemployed for 27 weeks or more.
  • Since the recession began, real average hourly wages have risen almost 5%.
  • The unemployment rate for college graduates is still only 4.5%, and the disparity between their pay and that of non-graduates has never been greater.
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