Macro & Micro economics Essay Example | Topics and Well Written Essays - 2000 words

Macro & Micro economics - Essay ExampleThe physique which started from 1929 lasted for more than a decade and its opinion was face up by most of the nations around the globe. The Great Recession of 2008 on the other hand took place due to a host of reasons including the subprime lending crisis, the irrupt of the US housing bubble, the drastic increase in the price of oil in the country and the devaluation of dollar. This report looks into the various aspects of the setbacks in the international raft caused by the collapse in US financial markets. The focus of this report is the main areas of the UK and EU which are in trade relations with the country of United States. at long last the changes in the trade policies in the post financial crisis period have been analysed. Causes and Mechanisms of the collapse of the world trade As during the time of the Great Depression when the phase saw increase in the rate of unemployment, lack of liquidity in the economy and various situations of bankruptcy, the great recession also witnessed the similar trouble. The economy faced a diminish in the import and exports which in turn affected those countries which depended mostly on foreign trade during the 1930s (Bernard, Jensen, Redding and Schott, 2009, p. 491). Similar thing happened at the time of the US recession in 2008. The entire economy experienced a plunge in the global trade which accounted for about 30% decline compared to the GDP of the country. The trade figures for the country have been shown with the help of the export import trends of the country. Figure 1 Export of US Source www.tradingeconomics.com It is clear that the exports of the country had been increase from before 2004. However, trade faced a jolt in 2009 at the outset of the period of recession. The trade of US recovered from 2010 and it is exhibiting an upward trend at the present day. Similar situations can be noniced in the European Union. The export situation for this region also faced the similar consequences as that of the US (Velde, 2011, pp 128). Figure 2 Exports in European Union Source www.tradingeconomics.com Economists have provided a host of reasons that would justify the trade collapse. First of all the render chain linkages have caused a drop in the trade figures. The vertical linkage hypothesis believes that with a decrease in the demand for the final goods, the demands for the modal(a) goods that add value to the final product are also at s ingest. With the advent of liberalisation, division of labour has taken place across countries and a mess hall of specialisation has occurred in the production process (Yi, 2003, p. 65). Thus if the aggregate demand in one country reduced it has an effect on the balance of trade of all the related countries. The compositional effect is a second reason why the international trade dropped during 2009. Trade of a country may take place in various sectors but there is a definite proportion in which it should take place. If inconsistent trade takes place in the sectors with the worsened affected level of domestic absorption, then the trade to GDP ratio would be most adversely affected (Erceg, Guerrieri and Gust, 2008, p. 2637). The US data on industrial production would be able to support this hypothesis. It has been empirically tested that the drop in trade took place more in the sectors that reported decline in the domestic output the most. Figure 3 Trade across product categories Source www.wto.org Finally the shortage of credit was the reason why trade could not take place at its full capacity. Any firm in order to carry on with the