Running head: THEORY OF SUPPLY AND DEMAND: BOEING AND AIRBUS 1

Boeing and Airbus: The Theory of Supply and Demand

On the

Current Market Outlook and Global Market Forecast

James M Wooddell

Embry-Riddle Aeronautical University

MGMT 523 - Advanced Aviation Economics

Dr. Srinidhi Anantharamiah

October 2017
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Introduction

The purpose of this paper is to gain a better understanding of the economic indicators and

their relationship with the business cycle as it pertains to the condition of the Russian Federation

during the Great Recession. Starting in mid-2007, the housing market bubble burst in the U.S

this began what is now known as the worst economic condition on a global scale since the Great

Depression, that has ever been seen, The Great Recession. The recession began in December of

2007 and continued through the latter part of 2009. Globally, many countries felt the effects and

aftermath of this significant economic event. In the U.S., the consumer spending habits declined

sharply and many businesses had massive losses in revenue which brought business investments

to a halt.

On a global scale, lack of consumer spending decreased exports, and in the case of

Russia, their stock market declined drastically partially due to the major concerns regarding the

price drop of Russias major commodities such as oil, and metals. Additionally, during the latter

part of 2008, the RTS (Russian Trading System) which is the electronic system in Russia

comparable to NASDAQ, on which the majority of Russian equities are traded (Nasdaq.com,

2017), plummeted approximately 54% which was the worst performing market in the world

(Lesova, 2008). The involvement of Russia in the U.S. housing bubble added major volatility to

their financial system. The Russian Central Bank owned approximately $100 billion dollars in

mortgage backed securities of both Fannie Mae and Freddie Mac, which were both taken over by

the U.S. government, causing the investment to be a total loss (Delasantellis, 2008).

These are just a few of the major events and indicators that contributed to the decline of

economic stability in Russia. Although there are multiple economic indicators to measure the

economic health of a nation, the most common is RGDP, or real domestic product. According to
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Marthinsen (2015) RGDP is an inflation adjusted measure of a nations market value of all final

goods and services produced domestically. When GDP increases, it is an indicator of an increase

in production which systematically improves employment, consumer spending, and indicates an

improvement in the overall economic condition of a nation.

Analysis

RUSSIAN ECONOMIC INDICATORS

35
30
25 GDP
20 Investment
15
Savings
10
Inflation
5
Unemployment
0
Deficit
-5
-10
2007 2008 2009 2010 2011 2012 2013

Figure 1. Russian Economic Indicators during Great Recession 2007-2013

Note: Please see Appendix A for raw data. Source: (International Monetary Fund, 2017)

As noted in Figure 1, the movements of Russias major economic indicators can be seen

as a percentage of the gross domestic product (GDP) and the percent of change year over year.

These indicators; GDP, Investments, Savings, Inflation, Unemployment, and Deficit are

noticeably changed throughout the recessionary period. The Russian economy, having strong

short term macroeconomic fundamentals, better prepared it for the effects of the global

recession, unfortunately its dependence on one major commodity, oil, had made the impact of

the recession more pronounced (The World Bank in Russia, 2008).

As seen in Figure 1, all of the mentioned economic indicators except for unemployment

and inflation started to decline slightly from 2007 going into 2008. Prior to the recession, from
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1999 to 2007 the Russian Federation had enjoyed a sustained growth of 7% per year GDP (The

World Bank in Russia, 2008), during this time Russia had built into its economic policy steps to

continue to increase its international reserves and lessen its sovereign external debt having

surpluses in both fiscal and external accounts. Through 2008, even with the reserves, Russias

dependence on oil became its Achilles heel. The major drop in oil prices globally decreased the

demand which caused the economy to slide to its lowest point in 2009.

This drop in oil prices globally, along with the decreased demand is directly tied to the

drop in GDP. Starting in Q1 of 2008 the GDP, at a point of 9.2% declined to its lowest point of

-11.20% in the second quarter of 2009. This drop directly correlates to the drop in crude oil

prices as shown in Figure 2 below.

Russian Federation Comparission Crude Oil Price - GDP

12 80

9 60

6 40

3 20

0 0

-3 - 20

-6 - 40
GDP growth (%, year-on-year)
-9 Urals crude oil price (%, year-on-year, right scale) - 60

- 12 - 80
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
2007 2008 2009 2010 2011 2012 2013

Note: Please see raw data in Appendix B. Source: (OECD Economic Survey, 2009)

As shown in Figure 1, the GDP shows a declining trend beginning in 2007 to 2009 which

supports the fact of a recession, additionally, the unemployment rate shows an increase which is

countercyclical to the GDP, as the decline of GDP increases there will be an increase in the

amount of unemployment due to lower demand of goods and services. When comparing

investments to the GDP trend, as well as the savings, each have a procyclical relationship with
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GDP. This indicates that both move in the same direction (Marthinsen, 2015). With a declining

GDP, the nations investments will also decline in response to the markets and businesses not

performing, this is to ensure a minimization of risk and loss.

Because gross national savings is a measure of the deduction of final consumption

expenditures from the gross disposable income, which consist of personal, business, and

government savings (CIA World Fact Book, 2017), the decline also follows the reduction of

GDP based on several factors, one of which is unemployment. As the unemployment rate

increased to its peak of 9.4% October 2009 (Bloomberg Markets, 2009) consumers and

businesses were using personal savings and reserves for necessities and not durable goods thus

decreasing the national savings. The deficit trend of Russia during the recession shows a

countercyclical relationship to the GDP, this is caused by the government having to spend more

to stimulate the economy, as well as a bail out of financial intuitions and other entities in order to

maintain an acceptable level of economy.

Conclusion

In an effort to analyze the effects of the Great Recession on Russias economy,

one of the goals of this paper was to understand the cyclical business environments. Business

cycles measure the periods of expansion and recession of a nations economy, typically these

cycles are irregular and unsystematic movements in real economic activity around a long term

trend (Marthinsen, 2015). These fluctuations can be caused by political, social, and or financial

events and can majorly effect the stability of a nations economy.

In an effort to provide a much clearer picture Figure 1 along with analysis of the data

presented in this paper showed several indicators of economic health as it relates to the

movements of GDP during the recession business cycle from 2008 through 2013.
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References

Bloomberg Markets. (2009). Russian Unemployment Rate. Retrieved from

https://www.bloomberg.com/quote/RUUER:IND

CIA World Fact Book. (2017). Russia. Retrieved from

https://www.cia.gov/library/publications/the-world-

factbook/docs/notesanddefs.html?fieldkey=2260&term=Gross%20national%20saving

Delasantellis, J. (2008, September). Paulson placates China, Russia - for now. Retrieved from

http://www.atimes.com/atimes/Global_Economy/JI10Dj04.html

International Monetary Fund. (2017). World Economic Outlook Database - Russian Federation.

Retrieved from https://www.coursehero.com/file/15498448/Activity-25-Assignment-1-

Great-Recession/?justUnlocked=1

Lesova, P. (2008, September). Moscow's financial turmoil keeps spreading. Retrieved from

http://www.marketwatch.com/story/more-turmoil-in-russia-as-trading-is-halted-after-

steep-falls

Marthinsen, J. E. (2015). Managing in a global economy: Demystifying international

macroeconomics (2nd ed.). Stamford, CT: Cengage.

Nasdaq.com. (2017). Russian Trading System. Retrieved from

http://www.nasdaq.com/investing/glossary/r/russian-trading-system

OECD Economic Survey. (2009). Organization for Economic Co-Operation and Development -

Russian Federation 2009. Retrieved from http://www.oecd.org/eco/surveys/economic-

survey-russian-federation.htm
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The World Bank in Russia. (2008). Russian Economic Report. , 17, Retrieved from

http://siteresources.worldbank.org/INTRUSSIANFEDERATION/Resources/rer17_eng.p

df
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Appendix A
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Appendix B

GDP Comparison Y-o-Y to Crude Oil Prices