Managerial Economics: UK GDP Analysis Report - University of London

This report provides a detailed analysis of the UK's GDP, examining growth rates from 1985 to 1995, with a focus on the variations in the early 1990s and their causes, including the impact of recession, unemployment, and inflation. The study evaluates the long-run growth rate and its economic effects, particularly the impact on housing prices. The report also investigates the influence of demand and supply on the London housing market, analyzing factors such as income, interest rates, and unemployment. Furthermore, it critically assesses the demand and supply framework to explain apartment price fluctuations in the early 1990s and 1995. Finally, the report forecasts the time it will take for the UK to double its GDP rate, considering the average growth rate and its implications for the economy.

Managerial Economics

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1: DATA ANALYSIS..........................................................................................................1
Examine the growth rate in real GDP in the United Kingdom for specific period. It will also
outline the variation in growth rates in the early 1990’s with growth rates when compared
with other years...........................................................................................................................1
TASK 2............................................................................................................................................2
Evaluating the long-run growth rate in UK and the economic effects........................................2
TASK 3............................................................................................................................................3
Examine the influence of demand or supply in housing in London...........................................3
TASK 4............................................................................................................................................4
Critically evaluating the appropriate demand and supply framework in order to examine
apartment’s price in early 1990’s and 1995................................................................................4
TASK 5............................................................................................................................................5
Forecasting how long will it take for UK to double their GDP rate...........................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Managerial economics in turn is considered to be as the consolidation of effective
economic theory in order to carry out business practice and also ease in decision making process.
It is also very useful in carrying out decision making process (Dhingra and et.al., 2016).
Managerial economics is useful for assisting the managers of the firm in order to find rational
solution to carry out firm’s operations. This study will examine the growth rate in real GDP in
the United Kingdom for specific period. It will also outline the variation in growth rates in the
early 1990’s with growth rates when compared with other years. It will also highlight in
evaluating the long-run growth rate in UK and the economic effects. Moreover, this study also
tends to examine the influence of demand or supply in housing in London. This study also
critically evaluates the appropriate demand and supply framework in order to examine
apartments price in early 1990’s and 1995. This study will also forecast how long will it take for
UK to double their GDP rate.
TASK 1: DATA ANALYSIS
Examine the growth rate in real GDP in the United Kingdom for specific period. It will also
outline the variation in growth rates in the early 1990’s with growth rates when compared
with other years.
Year Real GDP
per capita
(US
Dollars)
Growth
Rate
(Percentage)
1985 $20,073 ------
1986 $20,830 4%
1987 $21,734 4%
1988 $22,783 5%
1989 $23,237 2%
1990 $23,352 0%
1991 $22,947 -2%
1992 $22,922 0%
1993 $23,379 2%
1994 $24,317 4%
1995 $24,987 3%
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Gross domestic product is considered to be the monetary value of all finished goods and services
within the country for the specific period. Gross domestic product is useful in providing a
snapshot of the economy and how the economy is working. GDP is very useful to estimate the
size and growth rate of the economy which can be calculated by estimating expenditures, income
and production. The key formula for calculating GDP growth rate is (GDP in current year / GDP
in previous year) - 1 * 100. The growth rate of the United Kingdom tends to have significant
difference in the GDP percentage. In the year 1986 the growth rate was 4% and was consistent in
till the year 1987. The growth rate of GDP has increased by 1%. Which make the GDP rate of
the year 1988 to 5%. The GDP rate of the year 1989 has significantly reduced to 2% and
moreover GDP has fallen to 0% in the year 1990. In the year 1991 the GDP has fallen to -2%. In
the year 1992 the GDP of the United Kingdom was estimated to be 0% and it has significantly
increased to 2% in the year 1993. In the year 1994 the GDP of the United Kingdom was
estimated to be 4% and it has significantly decreased to 3% in the year 1995. There seems to be
significant difference in GDP growth rates in the early 1990s when compared with the growth
rates of 1985 to 1989 in UK. This is because UK economy has faced severe recession in the year
1990 which lead to high degree of unemployment and high degree of inflation rate in UK is
considered to be one of the most prominent reason which has led to difference in GDP growth
rate in the early 1990s when compared with the growth rates of 1985 to 1989. Restrictive
monetary policy which has been enacted by the central banks and increase in the inflation
concerns, loss of business confidence, increase in oil prices, et cetera considered to be the key
reason which led to decrease in the GDP growth rate in United Kingdom (Hill and Munday, M.,
2016).
TASK 2
Evaluating the long-run growth rate in UK and the economic effects.
The 1990 UK recession in turn has largely impacted the economy of the United Kingdom.
Recession of the year 1990 UK economy in turn has eventually resulted in high degree of
borrowing cost which in turn tends to eventually resulted in increase in the mortgage interest
payment (Crafts, 2016). This recession period of the year 1990, has resulted in low degree of
disposable income to the consumers. This has also resulted in decrease in the prices of houses
because they cannot afford payment for the mortgage loan. The UK economy of the 1990 has
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faced high degree of severe recession which in turn has eventually affected the economy. The
transition in the economic environment in London in the early 1990’s was considered to be
highly significant which in turn has significantly influenced the economic environment of UK
(Igwe, Emmanuel and Ukpere, 2015). The economic climate has changed significantly which in
turn has largely affected the price. The long run growth rate within the UK was of 1986 to 1988
period which had high degree of positive impact on the working of the economy. Long turn
growth in the GDP rate states that the economy of the UK is stable which helps in improving the
economic condition of the UK.
TASK 3
Examine the influence of demand or supply in housing in London.
An increase in income
A general increase in income of all income bands would mean that more people could financially
afford housing and we would see an overall increase in the demand of homes. The rich would
also consider buying more houses as real estate is an excellent investment option and to generate
cash flow using rental income (Buckley, Pass and Prescott, 2016). Since the quantity of available
housing space is fairly constant the demand will steadily keep increasing over time. However we
may see newly constructed buildings on the outskirts of the city to take advantage of increased
prices.
A decrease in mortgage interest rates
A decrease in mortgage interest rates would support first time buyers in the city and also
motivate people looking to remortgage. As the number of people looking for new homes will
start to grow, the demand of housing options will start to grow as well (Ul-Hameed and et.al.,
2019). The market will also pick up on this trend of sudden surge in demand which will lead to
increased prices all around. This is a result of lenders trying to attract first time buyers.
A decrease in unemployment
Unemployment does allow a person to invest into housing as it is quite expensive. Therefore the
there is a loss in number of potential customers in the market looking for housing options. Sellers
will pull away from listing their property seeing lowered demand. Hence a decrease in
unemployment would lead to increased demand as more people would have the financial power
to purchase or invest into housing (Tupa and VOJTOVIČ, 2018). This will also boom the
economy and have indirect influence over increasing further demand for housing options.
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Competitive housing prices in other UK cities.
Competitive housing prices in some other UK cities will lead people who can work outside
London for work to shift to other cities for better financial stability and lowered expenses. As a
result this will increase the availability of housing options in London (Ziv and et.al., 2018). This
will lead to lowered demand in housing as there will be a large majority of people who will be
willing to shift out of London. This could result in lowering of housing prices in London itself to
compensate for competitive prices from other cities.
TASK 4
Critically evaluating the appropriate demand and supply framework in order to examine
apartment’s price in early 1990’s and 1995.
Apartments became more affordable in early 1990’s.
During the late 1980’s housing prices increased dramatically and created a price bubble which
burst during early 1990’s which made apartments more affordable. Also, the interest rates during
those times were very high that made mortgage repayments difficult and therefore people usually
refrained from buying housing in general. This created a lack of demand and homeowners had to
make lower the prices to make buying lucrative. Further, international investment was not
supported during the time and some laws restricted and limited foreign residents to invest in real
estate of the UK (Crocker, 2015). Many people saw the opportunity of affordable housing a way
to earn money and started mortgage to let strategy in which they would buy only to rent the
property. This increased the number of available housing options during that time. Also the UK
was far less developed during the time so there were some problems of transportation and other
amenities which led to reduced interest in purchasing new properties.
Apartments’ prices increased by 1995
After a period of affordable housing, the prices stared to increase from 1995. This is largely a
result of reduced interest rates on housing. When the interest rates were cut down buying a
property became affordable for many people. First time buyers also increased as a result of lower
interest rates. By this time development had reduced problems like transportation which led
many people to migrate from lesser developed countries in search of better facilities and work.
This sudden demand caused shortage of available housings and led to increased apartments’
prices. The valuation of properties especially in London increased dramatically which made
more people interested in housing and created further demand. Lack of new space for
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construction was also a prime factor in price surges as cities like London were already developed
and only existing buildings had to support the rise in number of people. By this time real estate
was seen as a brilliant investment option as people who earlier purchased properties were already
seeing valuation improvements (Machin and Vignoles, 2018). Furthermore the capital gains on
real estate are not taxable in UK which makes it a relatively risk free option. All these factors
combines are responsible for the increase in apartments’ prices in 1995.
TASK 5
Forecasting how long will it take for UK to double their GDP rate.
The average GDP growth rate of the United Kingdom is estimated to be 2% which in turn
eventually helps in effectively evaluating the economic conditions of the UK (Riley, Rincon-
Aznar and Samek, 2018). It has been forecasted that, UK will take around 5 years in order to
double the GDP rate of the United Kingdom. The UK economy has been growing at a high
degree of significant level which in turn tends to determine that, increase in the GDP growth rate
is a sign of strong economy. High degree of increase in the GDP because it leads to raise in the
demand of the money (What is GDP and Why is It So Important to Economists and Investors?,
2020). Genuine process indicator is an appropriate measure which helps in improving the GDP
in order to attain the higher operational objectives. Growth in the GDP is an effective measure
because it helps in tracking the health of the United Kingdom economy. It is very useful in
representing the value of goods and services. A growth in GDP in turn tends to highly result in
experiencing recession and also helps in evaluating the growing of the economy. Increasing the
employment level helps in increasing the income level of the consumers which in turn eventually
leads to higher growth within the GDP rates of the UK economy.
CONCLUSION
From the study it has been summarized that, UK economy has faced severe recession in the
year 1990 which lead to high degree of unemployment and high degree of inflation rate in UK.
The long run growth rate within the UK was of 1986 to 1988 period which had high degree of
positive impact on the working of the economy. Unemployment does allow a person to invest
into housing as it is quite expensive. It has been concluded that, during the late 1980’s housing
prices increased dramatically and created a price bubble which burst during early 1990’s which
made apartments more affordable.
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REFERENCES
Books and Journals
Buckley, P.J., Pass, C.L. and Prescott, K., 2016. Canada-UK bilateral trade and investment
relations. Springer.
Crafts, N., 2016. The impact of EU membership on UK economic performance. The Political
Quarterly, 87(2), pp.262-268.
Crocker, G., 2015. The economic necessity of basic income.
Dhingra, S and et.al., 2016. The impact of Brexit on foreign investment in the UK. BREXIT
2016, 24(2).
Hill, S. and Munday, M., 2016. The regional distribution of foreign manufacturing investment in
the UK. Springer.
Igwe, A., Emmanuel, E.C. and Ukpere, W.I., 2015. Impact of fiscal policy variables on
economic growth in Nigeria (1970-2012): a managerial economics perspective. Investment
management and financial innovations, (12, Iss. 2 (contin.)), pp.169-179.
Machin, S. and Vignoles, A., 2018. What's the Good of Education?: The Economics of
Education in the UK. Princeton University Press.
Riley, R., Rincon-Aznar, A. and Samek, L., 2018. Below the aggregate: a sectoral account of the
UK productivity puzzle. Economics Statistics Centre of Excellence Discussion Paper 2018, 6.
Tupa, M. and VOJTOVIČ, S., 2018. IMPACT OF BREXIT ON THE MIGRATION IN THE
UK. Ad Alta: Journal of Interdisciplinary Research, 8(2).
Ul-Hameed, W and et.al., 2019. The effect of integration between audit and leadership on supply
chain performance: Evidence from UK based supply chain companies. Uncertain Supply Chain
Management, 7(2), pp.311-328.
Ziv, G and et.al., 2018. The potential impact of Brexit on the energy, water and food nexus in the
UK: A fuzzy cognitive mapping approach. Applied energy, 210, pp.487-498.
Online
What is GDP and Why is It So Important to Economists and Investors?. 2020. [ONLINE].
Available through< https://www.investopedia.com/ask/answers/what-is-gdp-why-its-important-
to-economists-investors/>
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