In previous assignments you researched the economic situation in terms of three primary macroeconomic variables: GDP, employment, and changes in the price level. You also evaluated how fiscal and monetary policy was used during three economic events in the history of the United States.The Great Depression years of 1929 to 1933The 1970s Stagflation from 1973 to 1982The recent recession that occurred in the years 2008 to 2010In this final paper of 5 to 7 pages in length, you will draw on each of the earlier assignments (including integrating any feedback you received from your instructor) and provide a final summary paper. Your paper should include the following:A summary of the three historical events in terms of the economic concepts you have learned in this course.A discussion and analysis of what economic policies â??workedâ? versus what â??failedâ? in each of those three events.An analysis of current economic conditions in the United States. What is the current state of the United States economy and what challenges does the country face? How do you see this situation evolving over the next ten years? Using what have learned in your historical analysis of previous economic eras, make a forward-looking recommendation regarding what policies you believe would benefit the United States the most over the next ten years. This section should include your thoughts about fiscal and monetary policy. In addition to stating your policy recommendations, be sure to include an explanation of why you believe it is the â??best pathâ? from the standpoint of economic performance.previous assignments attached
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The economy of the United States has been through many ebbs and flows over the past century.
These cycles in economic activity highlight the variations possible in our economy. By using
economic indicators, we can view the economy from a national viewpoint to evaluate how it
reacts to stresses and forces that effect it.
In evaluating the economy during three unique time periods, it is beneficial to use the three
different tools of Gross National Product (GDP), Unemployment, and Changes in Price (Inflation
and Deflation) to give us an overview of our economy and what was happening during three
distinct periods in our history.
The Gross National Product (GDP) measures all goods and services that are produced within the
economy on a quarterly or annual basis. The expenditure approach is the most commonly used
method of determining GDP. This is the total of dollars spent on foods and services produced
within the boundaries of the United States.
This includes four categories of expenditures. Consumption is the final dollar spent on consumer
goods and is the largest part of the Gross National Product. Gross Investment is the second
component and is the final dollars spent on business and producer expenditures for equipment,
tools, etc. Government spending is the third part of the GDP equation and includes government
expenditures. Finally, net exports which are goods and services produced in the United States
and sold in foreign markets minus goods imported from other countries and sold in the United
The Gross National Product does not include production costs, value added, second hand or used
products, barter, financial or stock transactions, or do it yourself projects.
The Unemployment Component of evaluating our economy provides a number that indicates the
prevalence of unemployment in the United States. It evaluates the number of Americans that are
actively looking for work, but not currently employed. The Unemployment number is the
number of unemployed as a portion of the labor force.
The final â??markerâ? of the strength of the economy is changes in prices, either up or down for
products and services. Inflation would be a rise in the price in the cost of goods and services and
deflation would be a decrease in prices. Both would be on an annual basis. Either measures the
cost of living, reflecting the purchasing power during a given period of time.
Using the three tools of GDP, Unemployment, and Price Changes it is possible to evaluate three
unique periods in the history of the United States and see how these three components were
The three events we are evaluating are the periods of the Great Depression (1929-1933), the
1970â??s period of Stagnation and the recession of 2008-2010.
During the Great Depression, the Gross Domestic Product of the United States saw a tremendous
hit. From the onset of the Depression in 1929, GDP dropped 8.5% in 1930, 6.4% in 1931 and
12.9% in 1932, before â??recoveringâ? to a negative 1.3% in 1933. The GDP shrank 50% in the
first five years of the Depression.
There are many reasons for the Great Depression. Bank failures, few regulations on banks, a
disproportionate distribution of wealth, low agriculture prices all played into the hit on the
The unemployment rate during the Great Depression went from a low of 3.2% in 1929 to 8.7%
in 1930 to 15.9% in 1931 to 23.6% in 1932 before topping out at 24.9% in 1933. The federal
spending programs of Franklin Roosevelt finally curbed both the decline in GDP and the
Unemployment rate in 1934.
Inflation during this period went from a growth in prices of .6% in 1929 to s decline (deflation)
of 6.4% in 1930, 9.3% in 1931, 10.3% in 1932 before rebounding to deflation of ,8% in 1933.
The period of Stagflation from 1973-1982 was a period of stagnant economic growth with high
unemployment and high inflation. This was unusual because inflation does not usually occur
when the economy is weak.
Figures as a percentage increase/decrease for that period are as follows:
Part of the responsibility for this period of the economy was due to oil prices and OPEC, But,
many believe that the policies of Richard Nixon were responsible for the Stagflation during this
period. Wage and Price controls, a tariff on imports and the removal of the US from the gold
standard all contributed to the stagnant economy.
The Recession of 2008-2010 saw the following figures:
This economic recession had many causes. The sub-prime lending issues caused a loss in
consumer confidence. Consumers stopped buying and became defensive. The government was
forced to intervene by bailing out banks that were failing and also to provide programs like
Obamaâ??s Economic Stimulus program. The result of this recession was a big decline (24%) in
housing prices and a big increase in unemployment with a decrease in prosperity.
Each period in American history had unique economic factors involved. In each case, the
government intervened to try to make things better. Roosevelt implemented New Deal programs
that did seem to help, Nixon was probably not as successful with his wage and price contols and
Obama and his bank policies and stimulus package had mixed results.
While no recession can compare to the Depression where GDP fell by 27%, the recession of
2008 had significant impact with an unemployment rate in excess of 10%
In all cases the forces of supply and demand prevailed and ultimately balanced the economy.
â??Unemployment Rates by Year since 1929â?
Kimberly Amadeo March 30, 2018
â??United States GDP by Yearâ?
Kimberly Amadeo March 30, 2018
â??What is Inflation?â?
Kimberly Amadeo March 30, 2018
â??Deflation, Its causes and why itâ??s badâ?
Kimberly Amadeo March 30, 2018
Module 3 Project
The economy of the United States has seen many swings in economic growth in its history.
Three periods in the history of the United States economy that have shown unique metrics
and at times great volatility are the years of the Great Depression from 1929-1932, the
Stagflation Period between 1973 and 1982 and the Great Recession between 2008 and 2010.
Each period is highlighted because of its tremendous impact on the country and world as a
whole, as well as on individual consumers and citizens.
The three periods of economic strife we are evaluating each had varying degrees of
government intervention to try to bring stability to the economy and provide for positive
The United States government uses fiscal policy as a tool to aid in balancing economic
factors such as inflation and employment. The two main ways the government can affect
change in the economy are government spending policy and government tax policy. Both
tools can be used independently or in combination to get the results the government officials
believe will best benefit the country.
During periods when the economy is growing slowly, fiscal policy could include an increase
in government spending, a reduction in taxes, or both. The concept is that the increase in
government spending will add jobs and income for citizens, increasing consumer spending
and demand for products and services. The reduction in taxes will increase income for
consumers, resulting in more spending.
There is a multiplier effect in play with fiscal policy. The concept is that the impact of an
increase or decrease in government spending or taxation will result in a greater positive or
negative impact than the amount initially applied. For example, $1 billion increase in
government spending will result in a multiplier increase in economic growth of more than $1
billion. The size of the multiplier depends upon a householdâ??s marginal decisions to spend
(marginal propensity to consume) or to save (marginal propensity to save).
Over time, the government has also instituted automatic stabilizers to offset fluctuations in
economic activity automatically without government voting or intervening each time. The
speeds the process of implementing effective solutions to reoccurring issues. Example would
be income tax policies and unemployment insurance.
The goal of the fiscal policy of the United States is to reach a point of full employment. That
would be a situation where all labor resources are being used in the most efficient way
possible it would be a situation with no unemployment caused by economic factors of
inflation or deflation.
The Great Depression, during the years of 1929 to 1933 was an unprecedented time for the
economy of the United States. There were many issues that caused the depression, and it is
somewhat controversial as to what the key elements were.
There was overproduction in industry and agriculture, high debt, an uneven distribution of
wealth, bank failures, reduced purchasing power and the stock market crash. Unemployment
increased by 43% between 1929 and 1933.
The government fiscal policy during the great depression varied from the beginning of the
period in 1929 through 1933 and beyond. At the beginning of the depression, little was done
from a fiscal policy standpoint. The prevailing economic thought was that the economy was
self-correcting and that a return to prosperity was imminent.
The major change came in 1932 when Franklin Roosevelt was elected president. He
implemented measures to stabilize the economy, which became called the New Deal. The US
government moved away from a balanced budget and toward an aggressive spending policy.
The â??workfareâ? programs of President Roosevelt resulted in the government hiring about
60% of the unemployed in public works and conservation projects that planted a billion trees,
saved the whooping crane, modernized rural America, and built a variety of projects from
tunnels and bridges to the Tennessee Valley Authority and aircraft carriers.
Once the Great Depression hit bottom in early 1933, the US economy embarked on four
years of expansion that constituted the biggest cyclical boom in US economic history. For
four years, real GDP grew at a 12% rate and nominal GDP grew at a 14% rate.
Most accounts of the Great Depression understate the effect of the New Deal government
spending job creation measure, because they donâ??t show how much the decline in
employment was due to the multiplier effect of spending on direct job creation. Also, the
â??work reliefâ? category did not include employment on public works funded by the Public
Works Administration nor the multiplier effect of PWA spending.
Roosevelt, with his government spending programs was able to reduce unemployment by
two thirds within a single presidential term. His focus on government spending and on
reducing unemployment were the hallmarks of his fiscal policy and his legacy as president.
The period of Stagflation between 1970 and 1982 was unique. The prevailing economic
theory at the time was that there was an inverse relationship between inflation and
unemployment. A certain level of inflation was acceptable because it resulted in a growing
economy with low unemployment. The general thought was that an increase in demand for
goods would drive up prices, which would encourage firms to expand and hire more
employees, creating even more demand.
In the 1970s those concepts changed. The United States economy entered a period of
Stagflation. Stagflation was characterized by slow economic growth with stagnant demand
along with high inflation and high unemployment.
It was a unique time with high oil prices, high inflation, high unemployment and a recession.
The core rate of inflation without considering food or fuel was 12.4% in 1980.
The determinants of this situation could Have begun with increased government spending
during the 60s under Lyndon Johnson. But during the 70s it was the oil supply situation
which resulted in increased gas prices which then caused increases in prices of everything it
was cost push inflation. The situation was supply shock, with the rapid increase in the price
of oil raising prices of everything while the economy slowed because production became
more costly and less profitable.
The theory was that the monetary policy should be constricted, reducing spending but, the
increase in oil and food prices caused a fiscal dilemma. Conventional anti-inflation fiscal
strategy would have been to restrain demand by cutting spending or raising taxes, but this
would have drained income from an economy already suffering from higher oil prices. The
result would have been a sharp increase in unemployment.
If policy makers chose to counter the loss of income caused by rising oil prices they would
have had to increase spending or cut taxes. Neither could increase the supply of oil or food.
However, boosting demand without changing supply would merely mean higher prices.
When Jimmy Carter became president in 1976 he instituted a two-prong approach to fiscal
policy. He geared his fiscal policy toward fighting unemployment, allowing deficits to swell
and establishing countercyclical jobs programs for the unemployed.
To fight inflation, he established a program of voluntary wage and price controls. Neither
worked very well and by the end of the 1970s the nation still had high employment and high
This era created a new issue affecting fiscal policy which was a national budget deficit. In
1981, new President Ronald Reagan pursued tax cuts and increased military spending. This
made pursuing policies to bolster demand more difficult. Ronald Reaganâ??s policy of
Reaganomics was built on reducing government spending, along with reducing the federal
income tax, capital gains tax, reducing government regulation and the monetary policy of
tightening the money supply to reduce inflation.
While the fiscal policies of Ronald Reagan were controversial and some feel that the
business cycle just played out resulting in a better economy, it could be argued that the
Reagan fiscal policies did result in progress for the economy. Reagan favored the
entrepreneur and his lowering of taxes and government regulation opened the doors for
business to gain a new foothold within the economy. The increased spending by the
government, especially on defense, likely helped the unemployment to decrease as well.
The final of the three unique episodes in our economic history was the recession from 2008
through 2010. This recession was caused by problems in the sub-prime mortgage imarkets,
bank failures and a loss of consumer confidence. The concept at the time was that deficit
spending could replace some of the demand lost during the recession and prevent the waste
of economic resources idled by a lack of demand.
The recession officially began in December of 2007. Unemployment rose from 4.4% in
March 2007 to 6.7% on November 2008. Real GDP declined at a .5% annual rate in the third
quarter of 2008.
During recessions, the government invariably pursues policies to stimulate aggregate
demand, that is to increase spending by households, firms, and government. An increase in
government purchases directly increases spending. In some cases, tax cuts or government
transfers may increase consumer spending.
This period was somewhat different than the others in that the monetary policies of Ben
Bernanke and the Federal Reserve played a much bigger role that in the past. While they
were effective, fiscal measure also needed to be implemented.
President Barack Obama did institute the economic stimulus package of 2008 to stave off the
recession. Tax rebates were instituted to lower and middle-class Americans. This gave
Americans more cash, but really did not change the aggregate demand curve, as many used
the money to to into savings or reduce debt and not into spending.
In 2009 Obama instituted the American Recovery and Reinvestment act. This was a fiscal
stimulus bill that put $800 billion in tax cuts and federal spending on public works projects
into the economy. The recession basically ended soon after when GDP growth turned
According to the Presidentâ??s Council on Economic Advisers, this resulted in a 2 to 3%
increase in real GDP in quarter two of 2009, 3 to 4% in the third quarter and a 1 to 3%
increase in the final quarter of 2009.
Obama is the biggest job creating president in history. His policies put 22 million people to
work from the depths of the recession in 2010until the end of his term. That is because
unemployment continued to rise even after the recession ended in 2009. It took a few
months of growth before businesses were confident about hiring again.
In summary, each of these three periods in the economic history of the United States brought
unique issues and problems to the government and the fiscal policies that were implemented.
The Great Depression went from a wait and see policy at the beginning of the period to an
aggressive government spending program that greatly reduced unemployment and sparked
the economy. The Stagflation period saw the contrarian situation of high inflation and high
unemployment during a sluggish economy. It seems that the government spending and tax
cuts of Ronald Reagan had a positive effect on spurring the economy. Finally, the Recession
of 2008-10 seemed to benefit from the combination of monetary policy and fiscal policy.
The Obama stimulus programs and jobs programs gave the economy a boost after a tough
The balancing act between using the fiscal tools of government spending and taxing as
opposed to letting the market adjust on its own is at the heart of the government decision
â??Monetary and Fiscal Policies in 2008-2010â?
Reed College Case Study
â??Fiscal Policy in the 1960â??s and 1970â??sâ?
Outline of the United States Economy
Conte and Carr
â??Stagflation, 1970â??s Styleâ?
November 12, 2017
The economy of the United States has been through periods of relatively consistent behavior,
as well as periods of turmoil and uncertainty. There are three periods in the recent history of
the United State that have demonstrated unique and unusual circumstances.
The periods are the Great Depression years of 1929-1933, The period of Stagflation from
1973-1982 and the period of the Great Recession between 2008 and 2010. These time
periods brought great strife to the economy and unusual challenges to the government and
The management of the economy falls into two separate â??campâ?. The first is the fiscal
policy, which it managed by the elected public officials at the Federal level. This is our
Senators and Representatives under the Executive branch of the government.
The second manager of the economy is the Federal Reserve System. The Federal Reserve
System is designed to create monetary policy for the economy of the United States. The
function of the â??Fedâ? is to provide and maintain and effective payments system, supervise
and regulate banking operations, and conduct monetary policy.
Managing monetary policy is the primary function of the Federal Reserve System. They
have three main tools in accomplishing that. The main tool is the buying and selling of U.S.
government securities. Which is referred to as the Open Market operations. The other tools
are the control of the discount rate and the reserve requirement.
The discount rate is the interest rate the Federal Reserve Banks charge financial institutions
for short term loans of reserves. The reserve requirement is the percentage of funds a bank
must set aside and hold in reserve, …
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