ECO 202 Study Guide - Midterm Guide: Structural Unemployment, Frictional Unemployment, Stock Market Crash

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14 Sep 2017
1. GDP: national yearly output: Y
a. Real GDP: adjusted for inflation
b. 1929-1932 GDP went down 25%
Great Depression: 1929-1939
Financial intermediaries: finding borrowers for savers
Financial disintermediaries: when too much saving is not borrowed
Runs on banks: people ran to banks to take out their savings
Hoarding: people began saving their money at home instead of keeping it in
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
8 Reasons for the Great Depression
1. Stock market crash
2. Severe droughts in the summer of 1929 and 1930
3. 1929-1932 4,000 banks closed
4. Financial disintermediation
5. Polish grandma
6. Gold standard
7. Smoot-hawley tariff of 1930
8. deflation
2. Miller’s Fundamental Principle of Macroeconomics: if some saving is not
borrowed and spent then some output is not bought and output will fall
3.All income must be spent or output is not sold. People began saving during the
great depression instead of spending it on goods being produced
GDP: went down by 25%
Unemployment: official unemployment went down by 25%, actual
unemployment 40%
Prices: went down by 25%
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