Frank and Bernanke

1. Frank and Bernanke Ch. 5: Macroeconomics: The Bird’s-Eye View of the Economy

2. Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html Econ 202

3. The United States Business Cycle, 1890-1940 Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html Econ 202

4. The United States Business Cycle, 1950-1990 Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html Econ 202

5. Great Depression • Roaring 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. Econ 202

6. Great Depression • Governments 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. Econ 202

7. Source: http://econ161.berkeley.edu/TCEH/Slouch_Crash14.html Econ 202

8. Great Depression • Gold 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). Econ 202

9. Spiral of World Trade: Jan. 1929 to Mar. 1933 Imports of 75 Countries. Source: E. Ray Canterbury, A Brief History of Economics, (World Scientific, Singapore: 2001), p. 209. Econ 202

10. Macroeconomics • 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. Econ 202

11. Keynesian Macroeconomics • Keynes 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. Econ 202

12. Modern Macroeconomics • Keynesian 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. Econ 202

13. Source: U.S. Department of Commerce, Bureau of Economic Analysis http://research.stlouisfed.org/fred/data/gdp/gdpca Econ 202

14. Source: http://www.stls.frb.org/fred/data/employ.html Econ 202

15. Source: http://www.economist.com/displayStory.cfm?story_id=346598 Econ 202

16. http://www.dallasfed.org/research/swe/2005/swe0502.pdf Econ 202

17. 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. Source: http://www.economist.com/displayStory.cfm?story_id=346598 Econ 202

18. Source: http://www.economist.com/displayStory.cfm?story_id=346605 Econ 202

19. Source: Bureau of Labor Statistics: http://www.bls.gov/cps/home.htm Econ 202

20. Source: http://www.newyorkfed.org/research/directors_charts/i-bcd_15.pdf Econ 202

21. Econ 202

22. US 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 Econ 202

23. Econ 202

24. Types of Macroeconomic Policies • Monetary • Fiscal • Structural Econ 202

25. Types of Analysis • Positive • Normative Econ 202

26. Types of Data • Aggregate • Detailed Econ 202