UN Drops Forecast for Global Economic Growth in 2022 to 3.1%

EconEye Admin

4 years ago

The United Nations significantly lowered its forecast for global economic growth this year from 4% to 3.1%. Global inflation is projected to increase to 6.7% in 2022, twice the average of 2.9% during 2010-2020, with sharp rises in energy prices.—abcnews.go.com

Answer the following questions to check your understanding of the story.

Use the AS/AD model to explain why when aggregate demand increases at its usual rate, the rise in energy prices will lead to slower economic growth.

Slower economic growth occurs because rising energy prices ______________.

a) increase firms’ costs and decrease long-run aggregate supply

b) move resources from production into combating inflation and decrease short-run aggregate supply

c) decrease consumption expenditure and decrease short-run aggregate supply

d) increase firms’ costs and decrease short-run aggregate supply

Wrong! - How do firms respond when energy prices rise? Does rising energy prices influence short-run aggregate supply or long-run aggregate supply?

That's Right! - An increase in aggregate demand increases real GDP. Rising energy prices increase firms’ costs and decrease short-run aggregate supply, which decreases real GDP. So, with rising energy prices, real GDP increases by a smaller amount than it would otherwise, and economic growth slows.

Is the UN forecasting a global recession?

The UN is _______________.

a) not forecasting a global recession because the forecasted economic growth is positive

b) forecasting a global recession because rising energy prices historically result in recession

c) forecasting a global recession because it is forecasting slower economic growth

d) not forecasting a global recession because a recession is usually accompanied by deflation

Wrong! - What are the characteristics of a recession? Is the UN forecasting these characteristics?

That's Right! - A recession requires two quarters of negative real GDP growth, and the UN is forecasting that real GDP growth will slow but not become negative.

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