Transcript Lecture 2

ECO120 Macroeconomics
Rod Duncan
Lecture 2- Some actual
economics
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INTERact.
Global financial crisis (GFC)
• Late 2008 some financial problems started
to appear in US and European banks.
• Several banks and investment firms were
bankrupt (not enough assets to cover their
liabilities)- and had to be rescued by
taxpayers.
• This banking crisis translated into a
macroeconomic crisis as banks started to
cut back on their lending for new projects.
Impact of the GFC
• The GFC has had a major impact on the
economies of developed and developing
countries in late 2008 and 2009.
• European countries and the US have been
severely impact, but Australia has not
been as badly affected.
• Let’s see what the impact was, and then
let’s try to understand what caused the
crisis in the first place.
Macroeconomic variables
• The data we will look at over the next few
slides are variables we typically study in
macroeconomics: Gross Domestic Product
(GDP), unemployment, employment,
exchange rate, shareprice indices, etc.
• The following data (up to March 2009) is
from the Reserve Bank of Australia
website at www.rba.gov.au.
So what happened?
• There is a lot of misinformation about the GFC
floating about. The GFC has been blamed on
capitalism, greed, stupidity, poor regulatory
oversight, etc.
• To a small extent, all of the above are partially
correct. But the primary cause of the GFC was
mortgage lending by banks to people who
traditionally could not get home-loans- the poor.
• Here’s how…