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Frank and BernankeFrank and Bernanke
Ch. 5: Macroeconomics: The Bird’s-Eye View of the Economy
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Econ 202 2
Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html
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Econ 202 3
The United States Business Cycle, 1890-1940The United States Business Cycle, 1890-1940
Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html
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Econ 202 4
The United States Business Cycle, 1950-1990The United States Business Cycle, 1950-1990
Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html
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Econ 202 5
Great DepressionGreat DepressionRoaring twenties: by September 1929 stock
prices were 40% above their fundamental value.
The Fed tried to cool off the market by raising interest rates (providing less money in the economy).
The slow-down was viewed in terms of typical market adjustments.
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Econ 202 6
Great DepressionGreat DepressionGovernments tried to balance budgets,
further slowing down the economy.Huge deflation made bank collateral
worthless in defaults.Bank failures triggered bank panics.Financial system ground to a stop.Falling prices provided incentives to
postpone investment.
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Econ 202 7
Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html
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Econ 202 8
Great DepressionGreat DepressionGold standard restricted countries to expand
money supply only when they acquired gold as a result of trade surpluses.
Those countries that abandoned the gold standard (Scandinavian countries, Japan) slipped away from the Great Depression.
To acquire gold, countries passed protectionist policies (Smoot-Hawley in US).
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Econ 202 9
Spiral of World Trade: Jan. Spiral of World Trade: Jan. 1929 to Mar. 19331929 to Mar. 1933
0
500
1000
1500
2000
2500
3000Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Imports of 75 Countries. Source: E. Ray Canterbury, A Brief History of Economics,(World Scientific, Singapore: 2001), p. 209.
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Econ 202 10
MacroeconomicsMacroeconomics
The need to view the economy beyond the supply and demand of individual markets grew from the experience of the Great Depression.
John Maynard Keynes published his General Theory in 1936.
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Econ 202 11
Keynesian MacroeconomicsKeynesian MacroeconomicsKeynes claimed that in the short run total
expenditures (aggregate demand) can fall creating unemployment, recessions, depressions.
It is the responsibility of the government to stimulate the economy in these cases through monetary and fiscal policies.
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Econ 202 12
Modern MacroeconomicsModern MacroeconomicsKeynesian macroeconomics only
concentrates on the short run.Living standards depend on long run
behavior of the economy.Living standards rise as a result of
productivity.
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Econ 202 13
Source: U.S. Department of Commerce, Bureau of Economic Analysishttp://research.stlouisfed.org/fred/data/gdp/gdpca
Real GDP (Chained 2000 Dollars)
0
2000
4000
6000
8000
10000
12000
1925 1945 1965 1985 2005
Bill
ion
$
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Econ 202 14
Population and Employment
0
50000
100000
150000
200000
250000
300000
1945 1955 1965 1975 1985 1995 2005
Years
(00
0)
CE16OV POP
Source: http://www.stls.frb.org/fred/data/employ.html
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Econ 202 15
Source: http://www.economist.com/displayStory.cfm?story_id=346598
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Econ 202 16
http://www.dallasfed.org/research/swe/2005/swe0502.pdf
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Econ 202 17
Source: http://www.economist.com/displayStory.cfm?story_id=346598
From about 1750, this iron law of history was broken. Growth began to be no longer invisibly slow nor confined, as it largely had been before, to farming. The new increase in human productivity was staggeringly large: it not only supported a hitherto unimaginable 7 1/2-fold rise in the world’s population, but entirely transformed the lives of ordinary people throughout the West.
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Econ 202 18
Source: http://www.economist.com/displayStory.cfm?story_id=346605
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Econ 202 19
Source: Bureau of Labor Statistics: http://www.bls.gov/cps/home.htm
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Econ 202 20
Source: http://www.newyorkfed.org/research/directors_charts/i-bcd_15.pdf
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Econ 202 21
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Econ 202 22
US TradeUS Trade The goods and services deficit in 2004 was $617.7 billion, the highest
on record. As a percentage of U.S. gross domestic product, the goods and services deficit increased from 4.5 percent in 2003 to 5.3 percent in 2004.
Exports increased $125.6 billion in 2004 to $1,146.1 billion. Goods were $807.6 billion and services were $338.6 billion.
Imports increased $246.9 billion in 2004 to $1,763.9 billion. Goods were $1,473.8 billion and services were $290.1 billion.
For goods, the deficit was $666.2 billion in 2004, the highest on record. For services, the surplus was $48.5 billion in 2004, down from $51.0 billion in 2003.
Source: http://www.census.gov/indicator/www/ustrade.html
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Econ 202 23
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Econ 202 24
Types of Macroeconomic Types of Macroeconomic PoliciesPolicies
MonetaryFiscalStructural
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Econ 202 25
Types of AnalysisTypes of Analysis
PositiveNormative
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Econ 202 26
Types of DataTypes of Data
AggregateDetailed