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Macroeconomic Issues 2007-2013 - PowerPoint PPT Presentation


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Macroeconomic Issues 2007-2013. The Great Recession: GDP begins to drop. Shaded area = recession. Employment falls. Unemployment Rises. The Stock Market Plummets. The Deficit Explodes. National Debt Grows. The Federal Reserve Prints Money. The beginnings of the great recession.

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the beginnings of the great recession
The beginnings of the great recession
  • High risk (“sub-prime”) mortgages became more common over past decade
    • Low down-payments
    • Poor credit histories
  • Mortgage default rates rise in 2008 because
    • Housing prices fell
    • Adjustable rate mortgages “reset”
    • Worsening economic conditions
  • Nearly 5 million homeowners lost their homes between 2008 & 2010
the financial crisis of 2008
The Financial Crisis of 2008
  • Financial institutions experience significant losses due to defaults on mortgages.
    • Several failing financial institutions either acquired by others or go bankrupt.
  • Federal Reserve and U.S. government extend aid to financial institutions
    • Fed lends money to banks
    • October 2008: Federal government establishes $700 billion TARP (troubled asset relief program)
  • Stock market drops nearly 50% in 2008
  • Difficult for business to borrow
  • Consumers cut back on spending
government attempts to stimulate the economy
Government attempts to stimulate the economy
  • Feb 2008: Economic Recovery Act
    • Approval of $168 billion stimulus package
    • Tax rebates to 130 million households
      • $600 for single
      • $1200 for married
    • “booster shot” for the U.S. economy
government attempts to stimulate the economy1
Government attempts to stimulate the economy
  • American Recovery and Reinvestment Act passed in February 2009
    • $288 b. in tax cuts and benefits
      • Housing,, cash-for-clunkers, etc.
    • $224 b. for education, health care, and entitlement programs
      • Health insurance for unemployed, extended unemployment benefits, etc.
    • $275 b. for federal contracts, grants and loans
      • Support to states, roads, etc.
on going issues
On-going Issues
  • Deficit reduction & “Fiscal Cliff”
    • Debt ceiling will be reached in Feb 2013
    • Taxes vs spending
    • Entitlement program reform
    • Monetary policy, interest rates and inflation.
  • Slow growth in U.S. economy
    • Unemployment has been stubborn
    • Structural change
    • Policies to improve growth in economy