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Global Economy Exam Notes

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ECN 220
Michael Jolly

Global Economy Exam Notes Depression Diminishing Trade Hypothesis o Theory: Trade diminishes over time relative to money 1. Technological progress  things from lesser developed countries increasingly becoming manufactured  recently natural products replaced by production of synthetics  Ex. Natural products (cotton) replaced with synthetics (nylon) 2. Less developed countries industrializing  fewer imports, replaced with manufacturing/ production 3. Rising real income  leading to greater spending on manufactured goods and services than food  Reason: When poor food is the priority With increase in income  more disposable money 4. Increasing economic instability  increased demand for protectionism shrinking trade o Why was this proven wrong?  failed to account for the rise in intra-industries (different brands) U.S. Depression o Real vs. Monetary factors o “Real” Factors (Keynesian)  Decline in construction after 1925  Why?  Geographic expansion reached max and population growth slowed down with a weak reparation rate  Weak agriculture  Reliance on credit to sell durables  Buy on credit because income could not keep up  Income inequality  Richer get richer and poor remain the same  Instead of rising income they boost credit o “Monetary” Factors  Many small local banks  Failed because they couldn’t survive from the depression  Couldn’t get peoples savings/investments back  Feds should have given credit to banks  To fix international crisis they increased interest Explanation for Depression 1. Credit Hypothesis (Bernanke) 2. Deflationary Expectation (Temin)  Expectation of price often changes when a consumer will buy a product  If expect prices to rise they’ll buy product now  If expect prices to drop they’ll postpone purchase 3. Stock Market Crash (Romer)  Believes that crash left a psychological effect  Left everyone feeling fearful  People too scared to spend money because they don’t know what will happen Long- Run 1. Kindleberg  U.S. failed at providing leadership  Took over leadership role but didn’t act like a leader  Only covered local issues * In need of strong central economy  International economy unstable  U.S. protectionist 2. Hansen  Rapid growth of population and geographic expansion  Led to increased production of goods  BUT when it reached max the U.S. needed to maintain the population and economy  BUT the population growth slowed and expansion stopped  Government needed to take over and create private investment 3. Rostow  Agriculture important  Needed to recover from overproduction + depression Institutions o Institutions created because of Bretton Woods  Bretton woods created IMF an
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