MACRO ECONOMICS PRESENTATION

MACRO ECONOMICS PRESENTATION

Recession Shock in
the US ?
SALONI SIRSAT-
74022120337

SHARYU GANDHI-
74022120738

PRANJAL MANSHANI-
Group
74022120619
Members
NIMAY PRABHU-
74022120957

SOHAM DESHPANDE-
74022119925
Bank of America is warning that high

inflation poses a credible threat to the

economic recovery that began just two

years ago.

"'Inflation shock' worsening, 'rate shock'

just beginning, 'recession shock' coming,"

Bank of America chief investment

strategist Michael Hartnett wrote in a note

to clients on Friday.

The warning came ahead of a new

government report on Tuesday that showed

consumer prices surged by 8.5% in March,

the fastest pace since December 1981.

There were record year-over-year price

spikes on everything from new vehicles and

men's apparel to baby food and salad

dressing.
 WHAT IS INFLATION ?

Inflation refers to a general progressive

increase in prices of goods and services
in an economy. When the general price
level rises, each unit of currency buys
fewer goods and services; consequently,
inflation corresponds to a reduction in
the purchasing power of money.
CAUSES OF INFLATION

COST-PUSH INFLATION EXPANSIONARY

FISCAL POLICY

DEMAND-PULL MONEY SUPPLY

INFLATION
 Cost-Push Inflation
Cost-push inflation occurs when prices

increase due to increases in production costs,

such as raw materials and wages. The

demand for goods is unchanged while the

supply of goods declines due to the higher

costs of production. As a result, the added

costs of production are passed onto

consumers in the form of higher prices for the

finished goods.
 Demand-Pull Inflation
Demand-pull inflation can be caused by strong

consumer demand for a product or service.

When there's a surge in demand for a wide

breadth of goods across an economy, their

prices tend to increase. While this is not often

a concern for short-term imbalances of supply

and demand, sustained demand can

reverberate in the economy and raise costs for

other goods; the result is demand-pull

inflation.
 Money Supply

Money Supply Excess currency (money) supply in

an economy is one of the primary cause of

inflation. This happens when the money

supply/circulation in a nation grows above the

economic growth, therefore reducing the value

of the currency.

In the modern era, countries have shifted from

the traditional methods of valuing money with
the amount of gold they possessed..
Expansionary Fiscal
Policy
Expansionary fiscal policy by governments can

increase the amount of discretionary income for

both businesses and consumers. If a government

cuts taxes, businesses may spend it on capital

improvements, employee compensation, or new

hiring. Consumers may purchase more goods as

well.

The government could also stimulate the economy

by increasing spending on infrastructure projects.

The result could be an increase in demand for

goods and services, leading to price increases.

 RECESSION

The standard macroeconomic definition of a recession is two

consecutive quarters of negative GDP growth. When this occurs, private

businesses often scale back production and tries to limit exposure to

systematic risk. Measurable levels of spending and investment are likely

to drop, and a natural downward pressure on prices may occur as

COMMERCIAL FISHING
aggregate demand slumps. GDP declines, and unemployment rates rise

because companies lay off workers to reduce costs.

 HOW INFLATION
CAUSES RECESSION ?

Market interest rates represent the cost of financial liquidity for

businesses and the time preferences of consumers, savers, and investors

for present versus future consumption.

In addition, a central bank's artificial suppression of interest rates during

the boom years before a recession distorts financial markets and

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business and consumption decisions.

When not enough resources can be made available to support all the

business investment plans, a rash of business failures may occur due to

increased production costs. This situation may be enough to tip the

economy into a recession.

"Although the last recession was sparked by a pandemic,
economic expansions are often ended by the Federal
Reserve slamming on the brakes to fight rising inflation.
Markets are bracing for the Fed to rapidly raise interest
rates, at the fastest pace in decades, to get prices under
control. The risk is that the central bank will do too much,
sinking the economy in the process."
 Economic Expantion are
ended by rising inflation

How do government reduce inflation ? Does it cause

economical growth ?
RECESSIONARY PRICE MOVES IN
MARKETS
Let's say an unnamed Fortune 1000 manufacturer is suffering from the effects of a

recession. What happens to this firm will likely happen to other big businesses as

the recession runs its course.

As sales revenues and profits decline, the manufacturer will cut back on hiring new

employees, or freeze hiring entirely. In an effort to cut costs and improve the

bottom line, the manufacturer may stop buying new equipment, curtail research and

development, and stop new product rollouts (a factor in the growth of revenue and

market share). Expenditures for marketing and advertising may also be reduced.

These cost-cutting efforts will impact other businesses, both big and small, which

provide the goods and services used by the big manufacturer.

Contractionary monetary policy
Higher interest rates increase the cost of borrowing money,

which discourages consumers from spending on some goods and

services and reduces businesses’ investment in new equipment.

The decrease in consumption spending by consumers and in

investment spending by businesses decreases the overall

demand for goods and services in the economy.

With decreased production, businesses are less likely to hire

additional employees and spend more on other resources.

As these decreases in spending ripple through the economy,

inflationary pressures would diminish and the inflation rate

would fall back toward 2 percent.

 COOLING OFF THE
JOBS MARKET

When labor demand falls significantly, downturns tend to follow. There

has never been an increase in the unemployment rate of more than 0.35

percentage points on a three-month average basis that wasn't

associated with a recession, Goldman Sachs said.

COMMERCIAL FISHING
 WHAT NEXT ?

Many people think the Fed may be able to tame inflation without

causing a recession.

To get inflation under control, Goldman Sachs said in a report Monday

night that economic growth must soften to a "modestly below-trend

pace -- enough to persuade firms to shelve some of their expansion

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plans, but not by so much to trigger sharp cuts in current output and

employment.

The Federal bank is still not forecasting this matter.

Thank You !