Thursday, November 15, 2012

London Olympics and Keynesian economics

The UK economy, which was in a longest double-dip recession after Second World War, has shown clear signs of recovery in this quarter riding on the success of London Olympics. The economy which witnessed a contraction of 0.4% in the previous quarter showed a growth rate of 1%  in the current quarter.

The ticket sales of the London Olympics, which contributed to 0.2%  of economic growth, helped UK to recover from the depression. ONS(office of national statistics, UK) also pointed out that the London Olympics had boosted creative arts and entertainment, food and drink business and transport industry.Along with Olympics effect, the bounce back effect and the extended holidays that came from 60th anniversary of the Queen succession to throne also contributed to the GDP growth.

The Keynesian economic principles says that in short run if you want to bring an economy out of recession, you have to to shift the Aggregate Demand(AD) curve of (Labour-receipts curve) upwards because Aggregate supply(AS) curve is difficult change in the the short run. AD curve is more related with psychology of entrepreneurs participating in the economic activity.The AS curve which is more related to the technology, cannot be shifted in short run.

So coming to our context, the increased spending due to public holidays by individuals and Government due to Olympics and extended holidays have helped UK entrepreneurs regain their confidence and helped in healing wounded economy. 

Morale of the story:-
 In the time of difficulty everyone tends to become a bit conservative and reduce their spending. It is applicable to both Governments and individuals. In recession struck Europe this debate is going on how to bring out economy from recession. The control in spending may not be sufficient enough measure. You need more practical methods to instil confidence in entrepreneurs to get required push for the economy.

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