Final Essay Preparation

The “Great Recession” of 2008

Final AP Essay

1. Briefly discuss the major economic challenges facing the USA.

2. Analyze 2 important solutions to the structural problems facing the USA which will help it prosper in the 21st century

80 points40 minute college level essayUse at least 2 AP Econ Graph in your essay

Speculative Bubbles

Holland 1634 - 1637

1996 - 2000USA 2002 - 2007

Economy 2000 - 2012

Caused by

Credit Bubble

Led to

1996 - 2000

U.S. Economy in 2012

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

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Major Economic Challenges

1)

The American Dream?

http://www.npr.org/2012/05/29/153513153/american-dream-faces-harsh-new-reality

New Labor TrendsOver the past 15 years Labor has significantly changed

Globally:Globalization: “free trade” with other countries

Collapse of Soviet Union & Communist EconomiesChina & India emerge as economic powers (GDP growth > 10%)

European Union forms common currency (now what?)

Worldwide free flow of financial capital & labor (financial crisis)

United States: Unions are declining in power Less “Job Security” Declining Manufacturing Jobs Rising Demand for Educated Workers

↑ Gap between Rich & Poor

Bottom 20% Top 5%

Income Distribution

+56.0%+ 1.0%Change:

The pay gap widens in USA!

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Low-Skilled Labor

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College Educated Labor

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College Educated Labor

D2

D2

Top 1%

Great RecessionSlow Recovery

Slow Job Growth---Declining Labor Force Participation

GDP GDP GDP

What creates real economic growth?

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

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Keynes vs. Hayek

• http://www.youtube.com/watch?v=GTQnarzmTOc

Animal Spiritsversus

Malinvestment

http://www.gocomics.com/accounts/new?ref=nyt

What Good Are Economists Anyway?

Economic Solutions?

Inside Job

FNMA & FHLMC

Government takeover

AIG Insurance Company

Government Takeover

Wall Street Firms Bankrupt or Bought

Bear StearnsMerrill LynchLehman Brothers

Current Problem

Gov’tTakeover