1. Boom and Bust

3. Economies are Cyclical
Good times (Boom)
Bad Times (Bust)
Why?
Increase in spending (Boom)
Decrease in spending (Bust)
Why does spending change?
Prices Change
Banks stop lending

4. Prices Change $200 $220 $240 $260 $250? $280 $220 $260 $240? $270
$230?

5. Banks Stop Lending Banks do not loan money out
Consumers, Businesses (firms) cannot spend
Economy Shrinks

6. Why do banks stop lending?
They go bankrupt …or are about to go bankrupt 3% 6%
$3,000
$106,000
$103,000
$100,000
$100,000

7. Why do banks stop lending?
Problem #1
Why do banks stop lending?
I want my money back please.
Uhhh, we don’t have it.
They go bankrupt …or are about to go bankrupt
Cant Spend
Cant Spend
Out of Business
Can’t Loan
$106,000
$103,000
$100,000
$100,000

9. Less Money in economy
Less spending
Prices drop

10. BANK RUN Problem #2 Banks don’t make money holding money
No problem
Uh oh.
I want my money
We all want our money!
Banks don’t make money holding money
Banks make money loaning money
BANK RUN

11. Why do banks stop lending?
Problem #1 – The Great Recession ( )
Why do banks stop lending?
I want my money back please.
Uhhh, we don’t have it.
They go bankrupt …or are about to go bankrupt
Cant Spend
Cant Spend
Out of Business
Can’t Loan
$106,000
$103,000
$100,000
$100,000

12. The Great Depression (1930s)
Black Tuesday – Stock Market Prices dramatically drop
Psychological: People are worried – STOP SPENDING
Businesses Fail because no one is spending
People loses jobs
Loans stop getting paid bank Banks fail
EVEN LESS MONEY IN THE ECONOMY
Everything spirals out of control