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The U.S. economy is currently in a recession.

The U.S. economy is currently in a recession. True False. The “great recession” started in December 2007 and ended in June 2009. The unemployment rate in the U.S. today is in the following range. 6-7% 8-9% 10-11% 12% or above%.

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The U.S. economy is currently in a recession.

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  1. The U.S. economy is currently in a recession. • True • False

  2. The “great recession” started in December 2007 and ended in June 2009

  3. The unemployment rate in the U.S. today is in the following range • 6-7% • 8-9% • 10-11% • 12% or above%

  4. In 2011, the U.S. government had a budget deficit of approximately • $500 billion • $800 billion • $1,000 billion • $1,300 billion

  5. Macroeconomic Issues2007-2012

  6. The Great Recession: GDP begins to drop Shaded area = recession

  7. Employment falls

  8. Unemployment Rises

  9. The Stock Market Plummets

  10. The Deficit Explodes

  11. National Debt Grows

  12. The beginnings of the great recession • High risk (“sub-prime”) mortgages became more common over past decade • Low down-payments; • Poor credit histories • Mortgage default rates rise in 2008 because • Housing prices fell • Adjustable rate mortgages “reset” • Worsening economic conditions • Nearly 5 million homeowners lost their homes between 2008 & 2010

  13. The Financial Crisis of 2008 • Financial institutions experience significant losses due to defaults on mortgages. • Several failing financial institutions either acquired by others or go bankrupt. • Federal Reserve and U.S. government extend aid to financial institutions • Fed lends money to banks • October 2008: Federal government establishes $700 billion TARP (troubled asset relief program) • Stock market drops nearly 50% in 2008 • Difficult for business to borrow • Consumers cut back on spending

  14. Government attempts to stimulate the economy • Feb 2008: Economic Recovery Act • Approval of $168 billion stimulus package • Tax rebates to 130 million households • $600 for single • $1200 for married • “booster shot” for the U.S. economy

  15. Government attempts to stimulate the economy • American Recovery and Reinvestment Act passed in February 2009 • $288 b. in tax cuts and benefits • Housing,, cash-for-clunkers, etc. • $224 b. for education, health care, and entitlement programs • Health insurance for unemployed, extended unemployment benefits, etc. • $275 b. for federal contracts, grants and loans • Support to states, roads, etc.

  16. On-going concerns • Deficit reduction • Raise taxes and/or cut spending • Republicans vs. Democrats • Slow growth in U.S. economy • Unemployment has been stubborn • Structural change • Policies to improve growth in economy? • Problems in housing market continue • European Debt Crisis • Debt as a % of GDP • Greece: 152% • Italy 121% • U.S. 100%

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