Microeconomics is very essential because people make choices whose consequences are felt by the individual and the general society. Incentives matter and they consequently affect t choices. Rational choice and expectations guides the decision making process in any economy. The historical empirical and analytical evidence against the hypotheses studied in microeconomics is prodigious.
Recession is a period in which the economic activities in a country are contracted. During such periods, employment, GDP, business profits, capacity utilization, household income, investment spending and inflation falls while on the other hand unemployment and insolvency upsurge (Agarwal et al., 2005). Generally, recession results from an adverse demand shock. Recession have a negative effect on the economy (Asimakopulos, 1991). As a result governments always strive to ensure that recession does not impede economic growth. They do so by applying various expansionary microeconomic policies.
The stock market is an important indicator of the economic performance of a country. However, the activities and performance of the market is affected by various factors in the economy. My interests to focus on the relationship between recession and stock market exchange was triggered by the sight of how governments continually try to forestall or resolve economic recessions in their dominion. This paper will focus majorly on identifying the interrelationship between recession and performance of the stock market. It is worth knowing the relationship between the two since they greatly affect the economy (Agarwal et al., 2005). The analysis shall compare mainly the effects of recession on stock markets exchange the stock market in a northern country (Sweden) and eastern countries (Poland). Year by year analysis of economic recession in the two countries shall be evaluated to establish the extent of the effect that the recession has on the stock market exchange. The aggregate of the effects shall then be estimated and a solid inference drawn from the research and analysis (Asimakopulos, 1991). The research will also borrow heavily from Keynesian school of thought to reinforce the reliability of its conclusions.
Research question: what is the relationship between recession and the performance of stock market exchange?
Recent Studies that have been conducted clearly indicates the way micro-economy affects the stock exchange. The major issue that surrounds how micro-economy affects the stock market exchanges includes inflation and interest rates, hype and recession. Inflation and interest rates creates a predictable influence on the stock market exchange in the United States. The stock market is affected since the interest rates create a scenario of periodic adjustments that helps in taming inflation rates. According to Bradley (2009), it was said that, when interest rates are increased, most investors tend to sell their higher risks stocks to the government, e.g., bonds, so that they can take advantage of the high interest rates yielded in a bid of protecting their investments.
It was also said that hype was another factor affected the stock market. Arnott & Lipson (1986) argued that the release of new services to the market have an effect on the stock market exchange. Most organizations develop an interest to increase the shares and profits and this automatically raises the prices of the stock. There is need to consider the hype reaction instead of just reviewing the positives that comes with the increase in the prices of the stocks. The past success associated with certain products will always affect the behavior of the markets.
The performance of the market can be measured in terms of recession lows and rebounds. Armott and Lipson research looked at more than ten recessions and found that the stock market exchange rose averagely with 24%. This was common in the first six months after experiencing recession. It is factual that, recession provides a lot of pressure to the stock market and this increases the opportunities for purchase in the markets. In November 2001, there was a reduction of 18% in the stocks for the coming whole year. The world events like civil wars and natural disasters are also critical in determining the trends in the stock market exchange (Haririan 1989).
This part will try to point out various techniques, devices and methods that will be employed in carrying out the real research.
This research will take a qualitative research design, approach to investigate and analyze the micro economic policies that affects the stock exchange market in Spain, and other three neighboring countries. The research will try to gather the important points, analyze them, summarize, present and then interpretation of research findings for the important purpose of description.
The microeconomic models such as price discrimination and price mechanism will be applied to analyze how the micro economic policies such as interest rates and inflations affect the stock market. The basic supply and demand model will be used to show how the stock markets are able to allocate their resources without central authority intervention.
Sampling Techniques and the Sample Size
The research will make use of purposive sampling techniques, which will be aimed at answering the research questions, such how recession affect stock market exchange. This will be met by interviewing the government strategists and economists. The sample size to be included will be at least 5 interviews for a minimum of 5 days. A descriptive survey will also be used to provide an accurate portrayal or account of the characteristics, for example, inflation and interest rates, and interrelation between the performance of stock exchange market and recession.
Data Type and Source
Much of the data type will be secondary information especially from government documentation and electronic database to locate traditional and online sources on the topic. The primary database that will be used to locate resources using the key words will be ERIC (Education Resources Information Center). Other databases that will be used from the university library include EBSOhost Professional Development Collection, IEEE Computer Society and GALE Academic OneFile. The researcher will be using key words such as micro economy, micro-economic policies, recession, stock exchange marker, and microeconomic models. Research findings of other scholars will also be used to help analyze the effects of microeconomic policies on stock exchange market.
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