Economists of OcUk...?

I think a bit of all in one way or another, a better question would be, 'What is the main cause of unemployed during a recession'.

Our value of exported good will fall as interest rates will be cut and hence borrowing will be cheaper, this could actually increase jobs in some sectors.
The value of the pound will fall against the other currencies but then other countries will cut interest rates and hence their currencies will fall also.

The main reason for unemployment though is that banks don't want to lend to each other and hence the public/business, and businesses and consumers go into saving mode. Trying to pay of debt rather than spending. Hence businesses either go bust or they lay of people or just don't employ.
 
Not C, as commodity prices fall when in recession due to lack of demand*



* Unless you are a gas or electricity company in the uk who raise prices.
 
MagicBoy said:
I think it's B. C is the next most likely answer IMO.

There will be less demand for goods and services. Supply will outstrip demand and prices will fall as a result until production and therefore employment reduces.

C is a possibility, but with my exam head on it's too specific. To use a bad example off the top of my head it might apply if your a plastic factory (a good), not if your working in a call centre (a service).

That said ... its 15+ years since I did A-level economics.
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I strongly disagree that C could be answer. One of the most dramatic results for the 2008 recession was the enormous collapse of world oil prices in late 2008. Recession generally reduces demand which lowers price.

There are reasons why the price might rise but a recession generally causes the opposite.
 
The answer's B surely. if the world is in recession then all other things being equal there would be a fall in demand for all goods and the value of UK exports will fall, which will result in more difficult trading conditions and an increase in business failure, leading to higher unemployment.

Raw materials would be affected by demand from production which would fall in a recession, and with demand shifting it would lead to lower prices for raw materials.
 
MagicBoy said:
Next most likely ;)
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It's not though - this is a textbook economic quesiton and textbook economic theory tells us the answer can only be B.

A recession reduces the world consumers ability to pay which has the effect of depressing demand for world goods and services. When demand is depressed the laws of supply and demand tell us that price will fall to the point where demand and price meet. Empircal evidence supports this - world enters recession in mid 2008, by late 2008 we had $40 oil from $150 months previously.

This means oil, amongst other things, falls as a result of a world recession. It also tells us that A) is unlikely and, if its a world recession, D isn't neccesarily going to happen either (Whereas it would if it was a UK only recession).

Which leaves B as the only possible correct answer if we are answering it theoretically which of course we are as its a theory paper :p If you think about it in its most basic form, recession = less demand, therefore less demand for goods and services exported from the UK.

Job done, Answer B, not really that ambiguous at all once you realise it's economic theory not a history question :p
 
piggeh said:
The answer's B surely. if the world is in recession then all other things being equal there would be a fall in demand for all goods and the value of UK exports will fall, which will result in more difficult trading conditions and an increase in business failure, leading to higher unemployment.

Raw materials would be affected by demand from production which would fall in a recession, and with demand shifting it would lead to lower prices for raw materials.
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But if the price of goods also falls then wont this cancel out the fall in demand, i.e more or equal production.

With regard to oil it's price seem to both fall and rise during a recession even though demand reduced in 2008 the price actually fell to $35 p/b from $147 p/b.

2002 - Jul 2006: run up from $20 to $76

Jan 2007: dropped to around $52
Jul 2008: up to $147
Dec 2008: drop to around $35
Apr 2010: up to $85
May 2010: drop to $65
Dec 2010: Brent and WTI start to diverge (around $85 at the time)
Apr 2011: Brent at $125, WTI at $110
Oct 2011: Brent at $105, WTI at $77
Feb 2012: Brent at $126, WTI at $108
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So doesn't really make 100% sense to be oil, although at the same time it could be.

Still say it's a bit of all of them.
 
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Oil began to recover because some countries escaped recession altogether - ie China - and continued to post growth figures. So, it increased beause there was no 'world recession' at that point.

Remember - it's a theoretical question. In theory, price falls.

But if the price of goods also falls then wont this cancel out the fall in demand, i.e more of equal production.
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Not neccesarily, no - if price falls below marginal cost of production then it doesn't matter what the demand is - you lose money on every unit sold!

Still say it's a bit of all of them.
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It's B. It's a theoretical question and should be answered based on study of economic theory, because thats what the exam subject is. It's not a history question.
 
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jsmoke said:
But if the price of goods also falls then wont this cancel out the fall in demand, i.e more of equal production.
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But if the price falls (and I guess that the point of supply/demand meeting would be at a lower price point) then the value of goods exported has fallen.
With regard to oil it's price seem to both fall and rise during a recession even though demand reduced in 2008 the price actually fell to $35 p/b from $147 p/b.
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It should be answered on principle of Ceteris paribus (all other things being equal) so is not always observed in real world practice.
 
It's B.

You could make arguments for others, but they're all presuming other factors that the question doesn't give. As Piggeh says, at this level of Eco, we presume Ceteris Paribus. It's B.

(Have an eco degree)

kd
 
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