ECO 202 Lecture Notes - Lecture 1: Outhouse, Credit Crunch, Disintermediation

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13 Sep 2017
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The Great Depression
Unique event but almost happened again in 2007/2008
Bad government policies caused the Great Depression and good government
policies stopped another one from occurring in 2007/2008
The Great Depression started macroeconomics theory
Before we only had microeconomics and those concepts were applied to
everything
The government thought that if all business lowered their prices everything
would sell, FALSE
1929-1932
GDP WENT DOWN 25%
OFFICIAL UNEMPLOYMENT WENT DOWN 25%
ACTUAL UNEMPLOYMENT WAS 40%
PRICES WENT DOWN BY 25%
WAGE RATES WENT DOWN 25%
STOCK MARKET WENT DOWN 85%
1932-1939
GDP FINALLY ROSE TO 1929 VALUE
UNEMPLOYMENT WAS STILL AT 18%
TERMS TO KNOW:
Financial intermediation: finding borrowers for savings
Financial intermediaries: find borrowers for saving(banks)
Financial disintermediation: when too much savings is not borrowed or spent
Economic darwinism: the strongest banks will survive
Runs on bank: people run to the bank to take their money out
Hoarding: saving money at home instead of the bank
GDP: gross domestic product: nation’s output for the year
Nominal wage rate: the amount you are paid per hour of work
Real wage rate: what you can buy with the nominal wage rate
Inflation: general increase in the prices for goods and services
Deflation: lowering of prices for goods and services
Discouraged workers: those who are able to work, unemployed, but not looking for a job
The Federal Reserve: could have loaned banks money during the Depression but believed in
economic darwinism where the strongest banks would survive. Inefficient banks would go out of
business
MILLER’S FUNDAMENTAL PRINCIPLE OF MACROECONOMICS
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