The Business Cycle: Part Two P285

Activities

1: The Reserve Bank of Australia lowers interest rates during a conraction because it should raise people's confidence in the economy.

2: One of the main causes of a recession/depression is the lack of consumer spending, and not the inability of the economy to produce goods and services.

3: A depression is a prolonged time of recession ie: economic downturn.

4: Money not spent on products mean that businesses cut back on production. This in turn cuts incomes within the business and ultimately jobs. If the business shuts down because of the loss of employees and money through the lack of buying products consumer confidence is shaken more, especially if the company is a bank and millions of dollars are waged on the bank's survival.

5: a) Inflation is at a very low level which means low economic growth.
b) Inflation is at a very high level which means a lot of economic growth, plenty of spending, and high interest rates.

6: The government's main role in the economy is to regulate the mature and level of economic activity for the nation as a whole.

7: a) up, down, down, down, down, down, down.
b) down, up, up, up, up, up, up.

8) A rise in consumer confidence often means that people are more willing to buy. This, with increased demand, means that manufacturers make more produce and therefore spend more, injecting money into the economy which results in a boom.



9) a) Expansion

b) During the 1950's and 60's the economy was mainly steady, with spikes in 1950 and 53, but overall during that period the economy was in a slow expansion.

Unrest in the Middle East

Gulf Shares Drop In Middle East Unrest, SMH.com.au, 21/2/2011

Gulf shares drop on Mideast unrest

February 21, 2011 - 7:14AM

Stocks markets across the Gulf Arab states fell on Sunday, with Dubai's largest exchange registering the steepest drop as unrest in the Mideast lapped at the shores of oil kingpin Saudi Arabia.

The Dubai Financial Market closed down 3.66 per cent, to 1536 points, with developer Emaar Properties' shares sliding 4.73 per cent. The company was the force behind the Burj Khalifa, the world's tallest building. In Kuwait, the benchmark index closed down 2.52 per cent, to 6394, bringing its year-to-date losses to more than 8 per cent.

The drops in the oil-rich Gulf region's exchanges are largely linked to the unrest in Bahrain, where massive protests have roiled the island nation for more than a week as the Shi'ite majority presses the Sunni monarchy for greater rights and freedoms. Meanwhile, a bloody crackdown on protesters in Libya has further rattled markets as the unrest spilled over to the first major oil producer in the Middle East.

The uprisings in Libya and Bahrain "mark a new turn in the crisis," said brokerage house Nomura in a research note received on Sunday.

"Regional hydrocarbon producers are now being threatened, and sectarian divisions (notably in Bahrain) are increasing the risk of cross-border involvement in what have largely been domestic revolutions thus far."

Sunday is the start of the work week in the Arab world, except for Saudi Arabia, and the market selloffs reflected investors' first chance to weigh in on the developments over the weekend.

The protests in Bahrain marked the first time the unrest sweeping across the Arab world has seriously challenged the entrenched regime in one of the wealthy Gulf Cooperation Council nations.

Also aflame is Yemen, the Arab world's most impoverished nation, which sits on the south-western tip of the Arabian Peninsula.

The unrest on Saudi Arabia's doorstep has sparked fears of a spillover into the country, with concerns focusing both on the Sunni-Shi'ite divide in Bahrain and the fact that a significant change in Bahrain's political system could spark calls for similar reforms in Riyadh, which sits atop the world's largest proven reserves of conventional crude oil.

Saudi Arabia has a Shi'ite minority primarily located in its eastern province, where the bulk of its oil is located.

Any hint that stability is in question in the kingdom - the de facto leader of the 12-nation Organisation of the Petroleum Exporting Countries - could send oil prices surging across the world, threatening a continued global economic recovery.

"It's a general risk aversion in the region as a whole," said John Sfakianakis, chief economist with the Saudi Arabia-based Banque Saudi Fransi, explaining the drops in the region's markets.

With Egypt's market still shuttered after the unrest that toppled Hosni Mubarak, and the protests jumping from one Arab nation to the next, investors "are basically trying to hedge themselves against downside risks", Sfakianakis said. "And the downside risks are accumulating."

Saudi Arabia's TASI index closed down 0.78 per cent to 6333 points, building on a 1.6 per cent slip on Saturday, the start of the work week in the country.

In Kuwait, shares of telecommunication giant Zain fell 7.25 per cent to 1.28 Kuwaiti dinars.

The slide came a day after the investment company headed by Saudi billionaire Prince Alwaleed bin Talal withdrew its offer to buy a 25 per cent stake in the Kuwaiti telecom operator's division in the kingdom.

Kingdom Holding said in a statement on Sunday it believed the nonbinding offer it had submitted was "a reasonable offer to the shareholders of KHC and Zain Kuwait."

Qatar's exchange was down 1.6 per cent, to 8563 points, while Abu Dhabi's exchange was off 1.91 per cent to 2632 points.

AP

http://www.smh.com.au/business/markets/gulf-shares-drop-on-mideast-unrest-20110221-1b1bb.html

I have chosen this article because we are learning that in the world economy what happens in one country or region affects the entire world, notable the Global Financial Crisis in 2009 and the Great Depression in the 1930's. These however are extreme cases, but the Middle Eastern unrest (notably in Bahrain, Libya following up on Egypt's unrest) have made the share market in the affected countries and also in Dubai and Kuwait have dropped 3.66% and 2.52% respectively. Dubai's stock market slide was mainly due to Emaar Properties stock sliding down 4.73%.

The reason for the economic downturn in Libya and Bahrain (therefore affecting Dubai and the rest of the world) is that hydrocarbon producers are being threatened and that cross-border involvement is being increased. Yemen, the poorest nation on the Arabian Peninsula, is being affected as well.

Bahrain's conflict is being monitored closely by Saudi Arabia, as the Muslim Sunni-Shi'ite divide changed Bahrain's political system. This may spark a change in Saudi Arabia's policy as well, which just so happens to have a Shi-ite community on top of the bulk of Saudi Arabia's oil field. If stability is threatened there it would spark already oil prices to rise around the world, therefore threatening the recovery of the GFC.

Egypt has sparked all of this unrest, that has continued over to Libya, Bahrain and Yemen, but the economic impacts of the overall problem is that it could affect the rest of the world