Transcript 13.3 Economic Instability

13.3 Economic Instability
Objectives
 Use aggregate demand and aggregate supply
to analyze the Great Depression.
 Use aggregate demand and aggregate supply
to analyze demand-side economics.
 Use aggregate demand and aggregate supply
to analyze stagflation.
 Use aggregate demand and aggregate supply
to analyze supply-side economics.
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
Key Terms
 laissez-faire
 demand-side economics
 stagflation
 supply-side economics
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
3
The Great Depression and Before
In October 1929, the stock market crashed
and began what was to become the
deepest economic contraction in the
nation’s history.
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
4
Decrease in Aggregate Demand
Stock market crash of 1929, grim business
expectations
A drop in consumer spending
Widespread bank failures
A sharp decline in the nation’s money
supply
Severe restrictions on world trade
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
The Decrease of Aggregate
Demand Between 1929 and 1933
5
Figure 13.6
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
6
Laissez-Faire
Laissez-faire—the doctrine that the
government should not intervene in a
market economy beyond the minimum
required to maintain peace and property
rights
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
7
From the Great Depression
to the Early 1970s
Stimulating aggregate demand
Demand-side economics—
macroeconomic policy that focuses on
shifting the aggregate demand curve as a
way of promoting full employment and
price stability
World War II and aggregate demand
The golden age of Keynesian economics
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
8
Stagflation: 1973–1980
Stagflation—A decline, or stagnation, of a
nation’s output accompanied by a rise, or
inflation in the price level
Reduction in aggregate supply
Stagflation repeats in 1980
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
9
Stagflation Between 1973 and 1975
Figure 13.7
CONTEMPORARY ECONOMICS
© Thomson South-Western
13.3 Economic Instability
SLIDE
Since 1980: Improving Growth, Lower
Inflation, but Higher Federal Deficits
10
Supply-side economics—
macroeconomic policy that focuses on a
rightward shift of the aggregate supply
curve through tax cuts or other changes
that increase production incentives
Giant federal deficits
CONTEMPORARY ECONOMICS
© Thomson South-Western