Question

Evaluate the impact of the UK economic cycle on the long term trends of financial asset prices. Include 2 case studies to support your answer. 20 marks 750 words max, 400 minimum. Thankyou

Answer 1

INTRODUCTION:

Before the crisis of 2007-08 ,the UK economists believed that it was a period of economical boom and bust where there was echoing development and said it to be the period of upward swing of the GREAT MODERATION ,sooner all these perspectives were shattered with the crisis of 2007-08 coming in picture which gave a long term effect on a lot of fields one such is the financial assest .

EFFECT ON FINANCIAL ASSEST PRICES:

All starting as money and credit grew faster than GDP during the expansion period further also the long run structural vector autoregression model and decomposition factors driving and lending money lead to inflation which declared the onset of recession

However in the long expansion though UK had decifit current account trade and net external liabilities but had positive balance of income from abroad which actually improved their net external position . Therefore,indeed from 1997-2012 it seem to earn total gains worth 20% of 2012 GDP but still being a debtor . *Studying it ,revealed that composition of UK's assest as compared to its liabilities is based towards high yeilding asset class* . Resulting to have a favourable position wherein the changes in the net income levels were due to changes in regulatory environment ,as it is possible that the market regulation done by a country can also attract foreign investors to it ,moreover it had capacity to borrow more cheaply than to lend.

Furthermore,the outcomes show that a substantial element of betterment in the net income flow between early years of 1990's to the middle of next decade tend or believed to be the result of changes in the regulations of the UK's system . Specially due to the improvement cause of financial regulation tend to have positive outcome however for product market regulations it was somehow not in favour or negative .Now with the improvement or betterment in the financial market and it's asset values it encouraged foriegn investment,leading to outlow of revenue as a result the product sector also enjoyed its benefits as the growth of financial sector was capable of earning more from foreign investment than cost of finance,which however made it difficult to understand that how labor market deregulation could rise in steady state income . Now the economist could realise that the new made regulations might have given positive outcomes or has benefitted with the upward trend of regulatory variables have also led to overestimation of the it's effects. Overall, though the financial sector was somewhere giving signals for the onset of recession but those were not understood on time which actually bought and end to the royal phase of expansion in UK economy after long bringing the values of financial asset next to misery and making many and many businesses and works getting shut.

2 CASE STUDIES ARE :

1. FESSUD - Financialisation ,economy ,society and sustainable development done by Mimoza Shahani,Judith Tyson,Jan Toporowski,Terry McKinley
2. NIESR(National Institute of Economic and Social Reseach ) Discussion paper no 473

CONCLUSION:

The financial crisis was signal of recession bringing the long lived expansion phase to end wherein that time researchers were more interested in finaancial sector at the time of expansion and fall .

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