1. ECO120 Macroeconomics Rod Duncan Lecture 2- Some actual economics

2. Tutorial sign-ups –The tutorial sheets will be put up outside C2- 232 on Monday in the second week and on INTERact.

3. 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.

4. 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.

5. 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.www.rba.gov.au

15. 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…