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Principles of Macroeconomics

Principles of Macroeconomics. Economic Crisis. WHAT’S GOING ON. Recession Textbook definition NBER definition NBER – Peak December 2007. WHAT’S GOING ON. BEA Data – www.bea.gov Quarterly Real GDP Change 1Q 2008 + 0.9 % 2Q 2008 + 2.8% 3Q 2008 - 0.5% 4Q 2008 - 6.2%.

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Principles of Macroeconomics

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  1. Principles of Macroeconomics Economic Crisis Macroeconomics, March 30, 2009, Martha Stuffler

  2. WHAT’S GOING ON • Recession • Textbook definition • NBER definition • NBER – Peak December 2007 Macroeconomics, March 30, 2009, Martha Stuffler

  3. WHAT’S GOING ON • BEA Data – www.bea.gov • Quarterly Real GDP Change 1Q 2008 + 0.9 % 2Q 2008 + 2.8% 3Q 2008 - 0.5% 4Q 2008 - 6.2% Macroeconomics, March 30, 2009, Martha Stuffler

  4. WHAT’S GOING ON • What does this data mean? Determination of the December 2007 Peak in Economic Activity Macroeconomics, March 30, 2009, Martha Stuffler

  5. WHAT’S GOING ON • UNEMPLOYMENT RATE • IRVINE 5.6% • CA 10.1% • 7 US STATES > 10% • US 8.1% (Feb. 2009) • Discouraged workers Macroeconomics, March 30, 2009, Martha Stuffler

  6. WHAT’S GOING ON • Difference between recession and depression • Why Recession? • SHORT ANSWER Consumption and Investment ↓ Macroeconomics, March 30, 2009, Martha Stuffler

  7. WHAT’S GOING ON • Economy: 4 sectors: H, B, G and EX - IM • GDP = C + I + G + EX – IM • 100% = 72% + 14% + 20% - 5% Macroeconomics, March 30, 2009, Martha Stuffler

  8. WHAT’S GOING ON • DJIA = Measure of wealth • DJIA High was 10/9/07 14,165 Today about 7600 • What is the % decrease? Macroeconomics, March 30, 2009, Martha Stuffler

  9. WHAT’S GOING ON Macroeconomics, March 30, 2009, Martha Stuffler

  10. WHAT’S GOING ON • Estimates say US wealth fell 18% last year when net worth fell by $11 trillion • From 1990-2000 US wealth doubled • From 2000-2007 grew 50% to $50T • 2008 fell 18% Macroeconomics, March 30, 2009, Martha Stuffler

  11. WHAT’S GOING ON • How do falling stock prices and falling household wealth affect the economy? • Why is their overall decline important? • Stock prices are a Leading Economic Indicator Macroeconomics, March 30, 2009, Martha Stuffler

  12. WHAT’S GOING ON • Stock prices are an indicator of EXPECTATIONS • Harbinger of future economic activity • What is happening to US expectations? • Look at the LEI Macroeconomics, March 30, 2009, Martha Stuffler

  13. WHAT’S GOING ON Macroeconomics, March 30, 2009, Martha Stuffler

  14. WHAT’S GOING ON • FINANCIAL INSTITUTIONS Comptroller of the Currency National Banks Administrator 4th Q08 Report: Banks lost $3.5B in derivatives = 7 times more than their previous highest lost • Econ 105 or 210 Macroeconomics, March 30, 2009, Martha Stuffler

  15. WHAT’S GOING ON • BAILOUTS • FINANCIAL INSTITUTIONS Who Are They? • INSURANCE COMPANIES • HOMEOWNERS • AUTO MANUFACTURERS Macroeconomics, March 30, 2009, Martha Stuffler

  16. WHAT’S GOING ON • Low interest rates • Low inflation • Re-fi mania • Fed supplying money and encouraging lending Macroeconomics, March 30, 2009, Martha Stuffler

  17. WHAT’S GOING ON • Jobless growing • Negative expectations • State budgets in trouble • CA $8B shortfall Macroeconomics, March 30, 2009, Martha Stuffler

  18. WHAT’S GOING ON • College Grads • Negative expectations Macroeconomics, March 30, 2009, Martha Stuffler

  19. WHAT’S GOING ON PERSONAL SAVING RATE Macroeconomics, March 30, 2009, Martha Stuffler

  20. WHAT’S GOING ON Macroeconomics, March 30, 2009, Martha Stuffler

  21. WHAT’S GOING ON • Why is the saving rate important? • How do business get $ to invest? Macroeconomics, March 30, 2009, Martha Stuffler

  22. WHAT’S GOING ON • INVESTMENT in economics • When Saving < Investment ► we require “capital inflows” = borrow from abroad • US shortage of saving and not alone worldwide shortage of saving in many high income nations Macroeconomics, March 30, 2009, Martha Stuffler

  23. WHAT’S GOING ON • US DISTINCTION World’s Biggest Debtor Nation • Who is the World Biggest Creditor Nation? Macroeconomics, March 30, 2009, Martha Stuffler

  24. WHAT’S GOING ON INTERNATIONAL TRADE • Economist view • WTO, GATT, NAFTA passed 1994 • Crisis ► Protectionism Macroeconomics, March 30, 2009, Martha Stuffler

  25. WHAT’S GOING ON • NAFTA - transnational border program • President just cancelled a pilot program allowing Mexican truckers to transport cargo in the US • Pilot program affects 29 Mexican carriers and about 100 trucks Macroeconomics, March 30, 2009, Martha Stuffler

  26. WHAT’S GOING ON • March 17th, 2008 Mexico released list of 89 US potential products and threatened new tariffs from 10-45% on March 17th • New stimulus bill has some kind of “buy American” provision • Our trading partners are feeling threatened and are not happy with us—Brazil just sent us a stern warning. Macroeconomics, March 30, 2009, Martha Stuffler

  27. WHAT’S GOING ON • Trade wars may develop from strong nationalism to protect domestic industries—undo GATT & WTO accomplished • How do tariffs affect the ability for domestic to compete with foreign companies in international markets? Macroeconomics, March 30, 2009, Martha Stuffler

  28. WHAT’S GOING ON How much does the US economy rely on International Trade? Macroeconomics, March 30, 2009, Martha Stuffler

  29. WHAT’S GOING ON IT’S NOT ALL ABOUT US! Macroeconomics, March 30, 2009, Martha Stuffler

  30. WHAT’S GOING ON • Dubai construction stoppage • Dubai in 2008 bailed out one of their biggest banks Macroeconomics, March 30, 2009, Martha Stuffler

  31. WHAT’S GOING ON DUBAI’S LEADING LENDER • Tightened lending requirements • 50% down to finance a home Macroeconomics, March 30, 2009, Martha Stuffler

  32. WHAT’S GOING ON EU • Confidence Declining • Banks not lending • How do EU unemployment rates typically compare to US unemployment rates? Macroeconomics, March 30, 2009, Martha Stuffler

  33. WHAT’S GOING ON 2008 EU average unemployment rates rose from 6.8% to 7.4% What was the rate of increase in EU unemployment rates? Macroeconomics, March 30, 2009, Martha Stuffler

  34. WHAT’S GOING ON China • Don’t know unemployment rate • 56% of 1.3B people live in countryside • Went into cities • Now, no jobs in the cities Macroeconomics, March 30, 2009, Martha Stuffler

  35. WHAT’S GOING ON • Return country to live on yearly average income of $700 • Shortage of good or high paying jobs • How will crisis affect US trade relations with China? Macroeconomics, March 30, 2009, Martha Stuffler

  36. WHAT’S GOING ON China and Russia Recommending US Dollar no longer serve as the international reserve currency Macroeconomics, March 30, 2009, Martha Stuffler

  37. WHAT’S GOING ON AFRICA • Tourism • National Parks Macroeconomics, March 30, 2009, Martha Stuffler

  38. WHAT’S GOING ON ASIA • Tourism • Manufacturing Macroeconomics, March 30, 2009, Martha Stuffler

  39. WHAT’S GOING ON US CHALLENGES BEFORE CURRENT CRISIS • Trade Deficit • Budget Deficit Macroeconomics, March 30, 2009, Martha Stuffler

  40. WHAT’S GOING ON US CHALLENGES BEFORE CURRENT CRISIS • Low saving rate • Rising consumer debt Macroeconomics, March 30, 2009, Martha Stuffler

  41. WHAT’S GOING ON PARADOX OF THRIFT Now when we need consumer spending, consumers are saving Macroeconomics, March 30, 2009, Martha Stuffler

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