The big and the small economy
Importances
Terms
⭐️ Assets are properties than can be sold, e.g. cars and shares.
⭐️ Boom is economic growth
⭐️ Gross Domestic Product (GDP) is the value of the production
⭐️ Liabilities corresponds more or less to debt
⭐️ Scarcity: Economic ressources are scarce and they therefore have to be prioritised.
⭐️ Subprime loans are loans that were given where there was a high risk. They had high interest rates and originate from the US
⭐️ The big economy is a country’s economy, i.e. the national economy
⭐️ The small economy is the personal finances
Laws
🔒 The law of scarcity: Human needs are always bigger than the scarce resources → the use of the scarce resources has to be prioritized.
Institutions
🏛 The Federal Reserve System (also known as 'the Fed' is the US's central bank.
Denmark, 2003 – 2008
There was economic growth – a boom.
The production grew → GDP grew → employment rate grew → unemployment rate fell → salaries grew (demand and supply) → more consumption → the spiral starts all over again – it is, in other words, self-perpetuating.
The global financial crisis, from 2007
Came to Denmark with approximately a year’s delay.
The banks in the US lent money to people that were not able to pay them back. People who normally would not get loans did, i.e. people with low incomes.
→
Americans with low incomes borrowed money to buy houses – subprime loans.
The Federal Reserve System increased the interest rate → some of the house buyers had to sell their houses but the house prices had decreased → the house buyers were not able to pay back their loans → the banks and the mortgage-credit institutes lost money → some banks went bankrupt →
All the banks had less money to lend
All the banks were hesitant about lending money to people
The banks were more hesitant about lending money to other banks
→
Financial crisis → general financial crisis
Investments fell because of less borrowing facilities
Consumption decreased because of less borrowing facilities → the import decreased → the crisis spread globally
Share prices fell → people’s savings/fortune declined in value
The unemployment rate increased → the state’s income fell and the state’s expenses increased → the state had to lend money
Kommentarer