ECO 1000 RC Principles of Economics & United States Macreconomy Analysis
As we look at positive externalities and negative externalities that impact the economy, we can assess the impact on the macroeconomy of the U.S.
For your initial post, address the following questions in at least two paragraphs:
Identify how the “New Deal” affected the U.S. macroeconomy.
Discuss how the U.S. economy in 2008 differed from the U.S. economy during the “Great Depression.”
Describe the point on the Production Possibilities Curve that the U.S. economy was operating at in 2008.
Identify how international trade affected the U.S. economy during the “Great Recession” in 2008?
Please refer to your textbook and online sources for your initial post. Credible online sources will need to be used to search for answers regarding the economy and your textbook for information relating to the “New Deal” and the “Great Depression.”
For your reply post, respond to a peer's answers to the questions and relate his or her answers to yours and the research you used to support your findings. Explore how both your answers reveal insights into how the economy works.
The "New Deal" affected the U.S. economy in various ways. First off, President Roosevelt created many forms of financial relief to citizens. He also created many huge infrastructure and and other projects to create jobs for the country. Social security came out of the New Deal. Which is still in effect today. The economy in 2008 was fueled by the crash of the housing market rather than the bank crash of The Great Depression. The curve was curving downward. Representing a loss in productivity and loss in output. During the Great Recession international trade was affected greatly. Real world trade fell by about 15%. The world GDP fell by nearly a factor of 4. The trade flows fell almost 30% according to st.louisfed.org. Petroleum imports fell by almost 27% according to st.louisfed.org.
Here is some info from the great depression from my text book
The 1930s: The Great Depression
Once upon a time my opponents honored me as possessing the fabulous intellectual and economic power by which I created a worldwide depression all by myself.
–President Herbert Hoover–
By the summer of 1929, the country had clearly built itself up for an economic letdown. Between 1919 and 1929, the number of cars on the road more than tripled, from fewer than page 98 million to nearly 27 million—almost one automobile for every household in the nation. The automobile market was saturated. Nearly three out of four cars on the road were less than six years old, and model changes were not nearly as important then as they are today. The tire industry had been overbuilt, and textiles were suffering from overcapacity. Residential construction was already in decline, and the general business investment outlook was not that rosy.
Had the stock market not crashed and had the rest of the world not gone into a depression, we might have gotten away with a moderate business downturn. Also, had the federal government acted more expeditiously, it is quite possible that the prosperity of the 1920s, after a fairly short recession, could have continued well into the 1930s. But that’s not what happened. What did happen completely changed the lives of the people who lived through it, as well as the course of human history itself.
Prices began to decline, investment in plant and equipment collapsed, and a drought wiped out millions of farmers. In fact, conditions grew so bad in what became known as the Dust Bowl that millions of people from the Midwest just packed their cars and drove in caravans to seek a better life in California. Their flight was immortalized in John Steinbeck’s great novel The Grapes of Wrath, which was later made into a movie. Although most of these migrants came from other states, they were collectively called Okies, because it seemed at the time as if the entire state of Oklahoma had picked up and moved west.
There had been widespread bank failures in the late 1920s and by the end of 1930, thousands of banks had failed and the generally optimistic economic outlook had given way to one of extreme pessimism. From here on, it was all downhill. By the beginning of 1933, banks were closing all over the country; by the first week in March, every single bank in the United States had shut its doors.
When the economy hit bottom in March 1933, national output was about one-third lower than it had been in August 1929. The official unemployment rate was 25 percent, but official figures tell only part of the story. Millions of additional workers had simply given up looking for work during the depths of the Great Depression, as there was no work to be had. Yet according to the way the government compiles the unemployment rate, these people were not even counted since they were not actually looking for work.3
The Depression was a time of soup kitchens, people selling apples on the street, large-scale homelessness, so-called hobo jungles where poor men and women huddled around garbage-pail fires to keep warm, and even fairly widespread starvation. “Are you working?” and “Brother, can you spare a dime?”4 were common greetings. People who lived in collections of shacks made of cardboard, wood, and corrugated sheet metal scornfully referred to them as Hoovervilles. Although President Herbert Hoover did eventually make a few halfhearted attempts to get the economy moving again, his greatest contribution to the economy was apparently his slogans. When he ran for the presidency in 1928, he promised “two cars in every garage” and “a chicken in every pot.” As the Depression grew worse, he kept telling Americans that “prosperity is just around the corner.” It’s too bad he didn’t have Frank Perdue in those days to place a chicken in every pot.
While most Americans to this day blame President Hoover for not preventing the Depression, and then, doing too little to end it, perhaps the single biggest cause of the Depression was that the Federal Reserve let the money supply fall by one-third, causing deflation. And to make things still worse, it did nothing to prevent an epidemic of bank failures, causing a credit crisis.
Why did the downturn of August 1929 to March 1933 finally reverse itself? Well, for one thing, we were just about due. Business inventories had been reduced to rock-bottom levels, prices had finally stopped falling, and there was a need to replace some plants and equipment. The federal budget deficits of 1931 and 1932, even if unwillingly incurred, did provide a mild stimulus to the economy.5
I see one-third of a nation ill-housed, ill-clad, ill-nourished.
—Franklin D. Roosevelt,
Second Inaugural Address, January 1937
Here is info on the new deal from the textbook
When Franklin D. Roosevelt ran for president in 1932, he promised “a new deal for the American people.” Action was needed, and it was needed fast. In the first 100 days Roosevelt was in office, his administration sent a flurry of bills to Congress that were promptly passed.
The New Deal is best summarized by the three Rs: relief, recovery, and reform. Relief was aimed at alleviating the suffering of a nation that was, in President Roosevelt’s words, one-third “ill-fed, ill-clothed, and ill-housed.” These people needed work relief, a system similar to today’s workfare (work for your welfare check) programs. About 6 million people, on average, were put to work at various jobs ranging from raking leaves and repairing public buildings to maintaining national parks and building hydroelectric dams. Robert R. Russell made this observation:
The principal objects of work-relief were to help people preserve their self-respect by enabling them to stay off the dole and to maintain their work habits against the day when they could again find employment in private enterprises. It was also hoped that the programs, by putting some purchasing power into the hands of workers and suppliers of materials, would help prime the economic pump.*
The economic recovery could not begin to take off until people again began spending money. As these 6 million Americans went back to work, they spent their paychecks on food, clothing, and shelter, and managed to pay off at least some of their debts. The most lasting effect of the New Deal was reform. The Securities and Exchange Commission (SEC) was set up to regulate the stock market and avoid a repetition of the speculative excesses of the late 1920s, which had led to the great crash of 1929. After the reform, bank deposits were insured by the Federal Deposit Insurance Corporation (FDIC) to prevent future runs on the banks by depositors, like those experienced in the early 1930s. Also, an unemployment insurance benefit program was set up to provide temporarily unemployed people with some money to tide them over. The most important reform of all was the creation of Social Security. Although even today retired people need more than their Social Security benefits to get by, there is no question that this program has provided tens of millions of retired people with a substantial income and has largely removed workers’ fears of being destitute and dependent in their aging years.
The New Deal was a much greater success in the long run than in the short run. While New Deal spending programs did not end the Depression, the reforms it put in place laid the foundation for unprecedented economic growth and broadly shared prosperity in the years after World War II.
The New Deal was a massive federal program that provided jobs to the unemployed, raised spending, and created important financial and economic institutions.
Clearly a lot of the credit must go to the new administration of Franklin D. Roosevelt, which reopened the banks, ran large budget deficits, and eventually created government job programs that put millions of Americans back to work (see the box titled “The New Deal”). Recognizing a crisis in confidence, Roosevelt said, “The only thing we have to fear is fear itself.” Putting millions of people back to work was a tremendous confidence builder. A 50-month expansion began in March 1933 and lasted until May 1937. Although output did finally reach the levels of August 1929, more than 7 million people were still unemployed.
By far, the most important reason for the success of the New Deal’s first four years was the massive federal government spending that returned millions of Americans to work. This huge infusion of dollars into our economy was just what the doctor ordered. In this case, the doctor was John Maynard Keynes, the great English economist, who maintained that it didn’t matter what the money was spent on—even paying people to dig holes in the ground and then to fill them up again—as long as enough money was spent. But in May 1937, just when it had begun to look as though the Depression was finally over, we plunged right back into it again.
What went wrong? Two things: First, the Federal Reserve Board of Governors, inexplicably more concerned about inflation than about the lingering economic depression, greatly tightened credit, making it much harder to borrow money. Second, the Roosevelt administration suddenly got that old balance-the-budget-at-all-costs religion. Government spending was sharply reduced—the budget of the Works Progress Administration was cut in half—and taxes were raised. The cost of that economic orthodoxy—which would have made sense during an economic boom—was the very sharp and deep recession of 1937–38. Tight money page 11and a balanced budget are now considered the right policies to follow when the economy is heating up and prices are rising too quickly, but they are prescriptions for disaster when the unemployment rate is 12 percent.6
A recession is a decline in real GDP for two consecutive quarters.
The ensuing downturn pushed up the official unemployment count by another 5 million, industrial production fell by 30 percent, and people began to wonder when this depression would ever end. But there really was some light at the end of the tunnel.
In April 1938, both the Roosevelt administration and the Federal Reserve Board reversed course and began to stimulate the economy. By June, the economy had turned around again, and this time the expansion would continue for seven years. The outbreak of war in Europe, the American mobilization in 1940 and 1941, and our eventual entry into the war on December 7, 1941, all propelled us toward full recovery.
When we ask what finally brought the United States out of the Great Depression, there is one clear answer: the massive federal government spending that was needed to prepare for and to fight World War II.
For most Americans the end of the Depression did not bring much relief because the nation was now fighting an all-out war. For those who didn’t get the message in those days, there was the popular reminder, “Hey, bub, don’t yuh know there’s a war goin’ on?”
The country that emerged from the war was very different from the one that had entered it less than four years earlier. Prosperity had replaced depression. Now inflation had become the number one economic worry.
Franklin D. Roosevelt, 32nd president of the United States
Source: Library of Congress, Prints & Photographs Division [LC-USZ62-117121]
*Robert R. Russell, A History of the American Economic System (New York: Appleton-Century-Crofts, 1964), p. 547.
Herbert Hoover, 31st president of the United States
Source: Library of Congress, Prints & Photographs Division [LC-USZ62-24155]