Macro Greece

7/31/2019 Macro Greece

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GREECE

The country:

Economic

Greece is a capitalist country, with 40%of its Gross Domestic Product belonging to the public sector. 20% of the workforce are immigrants,and they usually work in unskilled, or a gricultural jobs. Tourism is amajor industry, as it accounts for 15% of the country’s GDP. 3.3% of the GDP is from the EU aid, as Greece is one of the major beneficiaries(The World Factbook, 2O11).

Between 2003 and 2007 , the country’s economy grew by close to4.0%, due to the 2004 Olympic Games, held in Athens. This wasbecause they had greater available credit, so it increased consumer

spending.

In 2009, however, the country went into recession. The government tightened by 2% that year, and by 4.8% in the next. In 2009, the yviolated the EU’s “Growth and Stability Pact”, as their deficit h adreached 15.4% of their GDP. It reduced to 9.4% in 2010, howeverunemployment rose to 12% (The World Factbook, 2O11).

In 2010, the IMF and Eurozone governments, gave Greece $147 billionas emergency short term and medium term loan s, to pay out thecreditors. The Greek government announced increases in tax and cost

reductions adding up to $40 billion in three years.

Demography

Greece has an approximate population of 10,760,136 (July 2011 est.), with42.5years being the median age. 61% of the total population seems to beurbanized (2010). The labor force is made up off 5.013 million people (2010est.). 12.4% of them in agriculture, 22.4% in industries, and 65.1% inservices (2005 est.). Due to recession, the unemployment rate hasrisen to 12.5% (2010 est.) (Greece Demographics Profile 2O11, 2O11).

Social

Greek culture and society is very rich and diverse. Since they are situated wherethe “east meets west”, their traditions and practices have been influenced andaltered (Greece Culture and Society, 2O11).

Women are regarded as very important, and given a good education. Usually, theGreeks have tight knit families, where religion is highly important. They

celebrate different religious festivals with enthusiasm. Due to westernization,the people have become less orthodox, and more open minded



Political

Greece’s conventional long name is the Hellenic Republic, and its capitalcity is Athens (The World Factbook, 2O11).

The Prime Minister is head of government and a multi party system in Greece.The Executive or Legislature do not influence the Judiciary.

The country is divided into 13 peripheries, which are in turn divided in to 51prefectures “Nomoi”. Each is headed by a prefect “Nomarch”. A prefect is directly

appointed by popular vote (Politics of Greece, 2O11).

Geographical

Greece is located in Southern Europe. It is between Albania and Turkey, and

borders the Aegean Sea and the Mediterranean Sea. It is peninsular, and consistsof an archipelago of nearly 2,0 00 isl and s. It is 131 ,95 7 sq km in area. Themain natural resources are petroleum, iron ore, lead, zinc etc. thetemperature is usually dry and hot s ummers, and wet and mildwinters (The World Factbook, 2O11).

Transnational issues

Greece has disputes with Turkey in regards to air, territorial andmaritime affairs. Greece does not agree to adopting the nameMacedonia (The World Factbook, 2O11).



The theoretical basis:

Keynesian Economics

John Maynard Keynes developed a theory of macroeconomics known

as Keynesian economics. Its basis is that aggregate demand is themain source of business instability, and the main cause of recessions(Keynesian Model, 2O11).

In simple words, the main idea of his theory is that when someonedecides to hide and save a part of their money, rather than spend it,the money in the economy reduces by the same amount they havehidden. This in turn affects that person’s income, as ther e is now lessmoney in the economy. We would be working, but producing less, andgetting paid less. This is how a recession begins.

As Paul Krugman puts it beautifully (in mild economese):

- “The key to Keynes’s contribution was his realization that liquidity

preference — the desire of individuals to hold liquid monetary assets — can leadto situations in which effective demand isn’t enough to employ all the economy’sresources.” (Keynesian economics: the basics, 2O1O)

3 Key Assumptions

The three assumptions of Keynesian economics are:

Rigid Prices- usually it is the case that producers wouldn’t mindincreasing their prices, but would be quite reluctant on dropping theirprices. Therefore prices are rigid in the downward direction, whichprevents achieving market equilibrium

Effective Demand- this states that consumption expenditures are basedon a household’s disposable income, instead of what is available duringfull employment (Keynesian Model, 2O11).

Saving and Investment Determinants- while Classical economists believethat investments and savings are triggered by current interest rates,Keynesian economists believe that household investments and savings,

base themselves on disposable income, and want to save for the future.Commercial capital investments are based only on the expectedprofitability of the production (Keynesian Model, 2O11).

The Workings of An Economy

Commodity Markets

There is excess supply in case there is less aggregate expenditure than aggregateproduction. To stop this, businesses reduce the amount they produce. Whereaswhen aggregate production is less than aggregate expenditure, businessesincrease production.

http://krugman.blogs.nytimes.com/2008/11/30/the-greatness-of-keynes/

http://krugman.blogs.nytimes.com/2008/11/30/the-greatness-of-keynes/



Employment Markets

According to Keynesian economists, when there is an economic problem, thesolution lies in altering one of the key indicators. These are inclusive off interest rates, government policies, confidence, etc (Patil, 2O1O).

Composition of the Keynesian Formula

C + I + G + X − M = Y(GDP)

Consumption + Investment + Government Spending + Exports – Imports = GrossDomestic Product

(Keynesian formula, 2O1O)

Consumption- the utilization of economic goods to satisfy needs or inmanufacturing. (economic consumption, 2O11)

Investment- an asset is usually purchased, or a deposit is made in a bank, inhopes of getting a future return or interest from it (Keynesian formula, 2O1O).

Government Spending- government purchases that can be financed by taxes orgovernment borrowing. It is one of the major components of a country’s GDP (Keynesian formula, 2O1O).

Exports- goods or commodities transferred to another country legitimately,usually for trade (Keynesian formula, 2O1O).

Imports- goods or commodities brought in from another country legitimately,usually for trade (Keynesian formula, 2O1O).

GDP- Gross Domestic Product is a common measurement of national income(Keynesian formula, 2O1O).



Economic Consequences

There will be an increase in GDP in the case that there is an increase in the rateof consumption, investment, government spending and increase in exports. Thiswill cause a rise in aggregate demand (Keynesian formula, 2O1O).

On the other hand, if there is a fall in the mentioned factors, aggregate demandwill fall.

Criticisms and Inconsistencies Classic Liberal criticism- the “law of unintended consequences” occurs whenmoney is spent to fix something damaged, as this comes with an opportunitycost, and this governmental decision may be misguided (Keynesian economics,

2O11) .

New Classical Macroeconomics criticism- they felt that Keynesian economistsassumed everyone to short-sighted and foolish in order for their theories toprove true, as their economic understanding was different at a micro level.



The indicators:

Consumption

Household final consumption expenditure (annual % growth)

(The World Bank, 2O11)

The graph above shows us the household final consumption expenditure (1990-2010) in Greece. We can tell that 1993 suffered a dip in consumption, however it rises again, unsteadily, and reaches its peak in 2006 with a 6% growth. Then it falls to 3% in 2007-2008, and then due to recession, it falls close to a -3%.(decreased consumption)

Investment

Gross capital formation (% of GDP)


The graph above shows us the gross capital formation (1990-2010) in Greece.We see that from the years 1990, through to 2008, there is a sort of wave motion,



with smooth rises and falls in the economy. However, after recession hit, peoplestopped investing in Greece, as it was too risky. That is why there is a major fallin investment after 2008. (decreased investment)

Government Spending

Goods and services expense (% of expense)


The graph above shows us the goods and services expense (1990-2010) inGreece. We can see that the years 1995-1998 were pretty stagnant, but then

there was an increase in government spending. This must have been due to theOlympic Games being held in Athens. After which it falls, but then slowly rises.(increased government spending)

Exports

Exports of goods and services (%of GDP)




The graph above shows us the exports of goods and services (1990-2010) inGreece. We see that the exports from Greece have been quite constant. It’s onlyin1999 that exports start to increase, with a fall in 20 02 -200 3. This ho weve r

rises slight ly a nd s tabili zes, until it falls agai n i n 2009. (decrease inexports)

Imports

Imports of goods and services (% of GDP)


The graph above shows us the imports of goods and services (1990-2010) inGreece. We see that imports have been pretty stable, until 2000, when theypeaked. There has been a gradual decline, then incline, but then it suddenlydrops in 2009. (decrease in imports)

To put it concisely, in the current situation, Greece has:

Decreased consumption

Decreased investment Increased government spending Decrease in exports Decrease in imports.

As I stated earlier on :



C + I + G + X − M = Y(GDP)

Consumption + Investment + Government Spending + Exports – Imports = GrossDomestic Product

(Keynesian formula, 2O1O)

There will be an increase in GDP in the case that there is an increase in the rateof consumption, investment, government spending and increase in exports. Thiswill cause a rise in aggregate demand.

On the other hand, if there is a fall in the mentioned factors, aggregate demandwill fall.

Therefore there is no rise in aggregate demand for Greece, instead, the aggregatedemand will fall.



The data

Household final consumption expenditure (annual % growth)


Gross capital formation (% of GDP)




Goods and services expense (% of expense)


Exports of goods and services (%of GDP)




Imports of goods and services (% of GDP)


Unemployment, total (% of total labor force)




Greece consumer confidence

(Trading Economics, 2O11)

Greece inflation rate




Euro area interest rate




Bibliography

economic consumption. (2O11). Retrieved from The Free Dictionary:www.thefreedictionary.com/economic+consumption

Greece Culture and Society . (2O11). Retrieved from Maps of World:www.mapsofworld.com/greece/culture-and-society/

Greece Demographics Profile 2O11. (2O11, june 12). Retrieved from indexmundi:

www.indexmundi.com/greece/demographics_profile.html

Keynesian economics. (2O11, aug 25). Retrieved from wikipedia:en.wikipedia.org/wiki/Keynesian_economics#Main_theories

Keynesian economics: the basics. (2O1O). Retrieved from Bluematter:bluematter.blogspot.com/2OO9/1O/keynesian-economics-basics.html

Keynesian formula. (2O1O, jan). Retrieved from wikipedia:en.wikipedia.org/wiki/Keynesian_formula

Keynesian Model . (2O11). Retrieved from AmosWEB: www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=Keynesian+model

Patil, S. B. (2O1O). Classical Economics vs Keynesian Economics. Retrieved fromBuzzle: www.buzzle.com/articles/classical-economics-vs-keynesian-economics.html

Politics of Greece. (2O11, july 25). Retrieved from Wikipedia:en.wikipedia.org/wiki/Politics_of_Greece

The World Bank. (2O11). Retrieved from The World Bank:data.worldbank.org/indicator

The World Factbook . (2O11). Retrieved from Central Intelligence Agency:https://www.cia.gov/library/publications/the-world-factbook/geos/gr.html

Trading Economics. (2O11). Retrieved from Trading Economics:tradingeconomics.com/greece/indicators

Documents

Macro Greece