Notesale: Turn your study into money

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9/4/13
Macroeconomics Chapter 6 Pt
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It was deliberately created using
monetary policy to bring down inflation
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7%
We came out of that recession very rapidly however, as when inflation came down, the fed
brought interest rates down
1990-91 The Gulf War recession, was brought on by the paradox of thrift, but it was short and
mild
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Also short and mild
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Very much like TGD and
Japan’s 15 year slump, it was the result of an asset bubble, fed by debt, bursting (housing bubble)
which caused a financial collapse
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Fannie and Freddie failed because they got caught in the housing bubble too because they bought
up bad mortgages
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Then, all the money they owed to
Lehman Brothers was never going to be paid back, which scared the whole financial sector
Called a financial crunch, everyone was afraid to lend to everyone because they were afraid no
one could pay it back
Not bailing them out was a big mistake, because we would have saved a lot of taxpayer money
by keeping the recession from spreading
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A central concern of Macroeconomics is what determines long run economic growth
We are trying to figure out what causes economies to have fast growing long run economic
growth
China in 35 years has brought 650 million people from poverty into the middle class
In 1905, we find that life for many Americans was startlingly primitive by today’s standard
We can at least smooth out or moderate the business cycle through stabilization policies
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Real GDP per capita – total output divided by population – was $42,000 in the US in 2010
Real GDP adjusts the output to account for price changes
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When did long run economic growth start?
Long run economic growth is a relatively modern phenomenon
From 1000 to 1800, real aggregate output around the world grew about
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For example, information on prices and
wages from monastery records shows that workers in England weren’t significantly better off in
the early 18th century than they had been five centuries earlier
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5% per year
Inflation
A rise in the aggregate price level is inflation
A falling price level is deflation
The inflation rate is the percent change in the price level
We learn this through the CPI
Price stability is the preferred method
In 1980 the average worker in the US was paid 6

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