Chapter 13 U.S. Economic History

Early 1900’s 1900’s Events Financial Panic of 1907 Much regulation –The Jungle 1910’s Events FED created in 1913 World War I

1920’s 1920’s: Roaring twenties – Best economic decade Events Technology Productivity New industries –Car »Oil »Rubber –Telephone –Radio –Electricity –Construction –Movies High expectations Pent up demand Gap: Increase AS and AD: Expansionary

1930’s 1930’s: Great Depression: Worst economic decade Events Stock Market Crash Drought Gap: decrease AD: Contractionary Policy Cured by WWII and the New Deal (both  G) which increased AD J.M. Keynes (1936) – First Macroeconomic Theory Inventor of Macroeconomics Wrote the General Theory

1940’s Events World War II Pent up Demand Gap: increase AD: Expansionaary

1950’s Events New industries –Appliances –Highways –Air travel –Television –Computers Unions Sun Belt cities –AC and TV Shopping Centers Gap: Increased AS and AD: Expansionary

1960’s Events Vietnam War Gap: increase AD: Expansionary Policy Kennedy: First to use macroeconomics –Tax cut –Wage and price guidelines Johnson: Great Society –Vietnam War –Social and Manpower programs Phillips Curve – Short run tradeoff between inflation and unemployment W. Phillips: Discovered the tradeoff between unemployment and inflation

1970’s Events: Stagflation caused by supply shocks Increased energy prices Increased wages Drought Regulations Business taxes Gap: decrease AS: Contractionary Policy Long run Phillips Curve is Vertical at Full employment Natural rate of unemployment Nixon – wage and price freeze Ford (King) – WIN buttons Carter – Tax based incomes policy 1978: First Supply side policy – Deregulation of Transportation

1980’s Gap: decrease AD: Contractionary Policy (Reaganomics: Supply side economics of the 1970’s –Policy »Lower business taxes »Deregulation (Communication) »Reduce union power »Laffer Curve –Bad timing caused a Contractionary Gap: decreased AD »Worst since the Depression »Reagan increased taxes in 1982 »Homeless –Greater deficits »The deficits of Reagan in eight years are greater than the sum of all the budgets of every President before him

1990’s Early 1990’s Gap: decreased AD, Contractionary Gap ( ) Policy: Bush I “A kinder and gentler nation” - Gulf War Deficit budgets No new taxes – raised the old ones FED lowered interest rates Midnight Basketball

1990’s Late 1990’s Events Information age/New Economy –Personal Computer and the Internet – positive supply shock Phillips Curve shifted in Gap: Expansionary Gap, increased AS Policy –Clinton (Billy Blyeth) –Increased taxes –Decreased Government spending –Surplus Budget

2000’s Gulf War – war on terrorism,  G Increased cost of security Decreased consumer confidence Increased AD 911: Roger Ferguson Gap: Contractionary Gap cause by decreased AS Policy: Bush II Deficit budgets Lower taxes FED lowered interest rates Bush Bailout Package (10/2008) Policy: Obama Obama (2/2009) Economic Stimulus Package Gulf Oil spill

2010 Where are we now? 2010 Contractionary Gap –Tax rebate –Government spending is at an all time high –Largest deficit in history –Interest rates are constant