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