Transcript Introduction

The U.S. economy is currently in a
recession.
1. True
2. False
53%
se
Fa
l
Tr
ue
47%
• The “great recession” started in December
2007 and ended in June 2009
The unemployment rate in the U.S.
today is in the following range
6-7%
8-9%
10-11%
12% or above%
61%
24%
11%
12
%
or
ab
ov
e%
10
-1
1%
5%
89%
67%
1.
2.
3.
4.
In 2011, the U.S. government had a
budget deficit of approximately
59%
1.
2.
3.
4.
$500 billion
$800 billion
$1,000 billion
$1,300 billion
15%
18%
8%
$500 billion
$800 billion
$1,000 billion
$1,300
billion...
Macroeconomic Issues
2007-2012
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 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
• 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
• 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 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 concerns
• Deficit reduction
• Raise taxes and/or cut spending
• Republicans vs. Democrats
• Slow growth in U.S. economy
• Unemployment has been stubborn
• Structural change
• Policies to improve growth in economy?
• Problems in housing market continue
• European Debt Crisis
• Debt as a % of GDP
• Greece: 152%
• Italy 121%
• U.S. 100%