Post on 03-Jan-2016
Chapter 13
U.S. Economic History
Early 1900’s
1900’sEvents
Financial Panic of 1907
Much regulation– The Jungle
1910’sEvents
FED created in 1913
World War I
1920’s
1920’s: Roaring twenties – Best economic decade
Events
Technology
Productivity
New industries
– Car
» Oil
» Rubber
– Telephone
– Radio
– Electricity
– Construction
– Movies
High expectations
Pent up demand
Gap: Increase AS and AD: Expansionary
1930’s
1930’s: Great Depression: Worst economic decade
Events
Stock Market Crash
Drought
Gap: decrease AD: Contractionary
Policy
Cured by WWII and the New Deal (both G) which increased AD
J.M. Keynes (1936) – First Macroeconomic Theory
Inventor of Macroeconomics
Wrote the General Theory
1940’s
1940’sEvents
World War II
Pent up Demand
Gap: increase AD: Expansionaary
1950’s
1950’s
Events
New industries– Appliances– Highways– Air travel– Television– Computers
Unions
Sun Belt cities– AC and TV
Shopping Centers
Gap: Increased AS and AD: Expansionary
1960’s
1960’s
Events
Vietnam War
Gap: increase AD: Expansionary
Policy
Kennedy: First to use macroeconomics– Tax cut– Wage and price guidelines
Johnson: Great Society– Vietnam War– Social and Manpower programs
Phillips Curve – Short run tradeoff between inflation and unemployment
W. Phillips: Discovered the tradeoff between unemployment and inflation
1970’s
1970’s
Events: Stagflation caused by supply shocks
Increased energy prices
Increased wages
Drought
Regulations
Business taxes
Gap: decrease AS: Contractionary
Policy
Long run Phillips Curve is Vertical at Full employment
Natural rate of unemployment
Nixon – wage and price freeze
Ford (King) – WIN buttons
Carter – Tax based incomes policy
1978: First Supply side policy – Deregulation of Transportation
1980’s
1980’s
Gap: decrease AD: Contractionary
Policy
(Reaganomics: Supply side economics of the 1970’s
– Policy
» Lower business taxes
» Deregulation (Communication)
» Reduce union power
» Laffer Curve
– Bad timing caused a Contractionary Gap: decreased AD
» Worst since the Depression
» Reagan increased taxes in 1982
» Homeless
– Greater deficits
» The deficits of Reagan in eight years are greater than the sum of all the budgets of every President before him
1990’s
Early 1990’s Gap: decreased AD, Contractionary Gap (1991-1992)
Policy: Bush I“A kinder and gentler nation” - Gulf War
Deficit budgets
No new taxes – raised the old ones
FED lowered interest rates
Midnight Basketball
1990’s
Late 1990’s
Events
Information age/New Economy
– Personal Computer and the Internet – positive supply shock
Phillips Curve shifted in
Gap: Expansionary Gap, increased AS
Policy
– Clinton (Billy Blyeth)
– Increased taxes
– Decreased Government spending
– Surplus Budget
2000’s
2000’s
Gulf War – war on terrorism, GIncreased cost of security
Decreased consumer confidence
Increased AD
911: Roger Ferguson
Gap: Contractionary Gap cause by decreased AS
Policy: Bush II
Deficit budgets
Lower taxes
FED lowered interest rates
Bush Bailout Package (10/2008)
Policy: Obama
Obama (2/2009) Economic Stimulus Package
Gulf Oil spill
2010
Where are we now? 2010Contractionary Gap
– Tax rebate– Government spending is at an all time high– Largest deficit in history– Interest rates are constant