H2_EconomicStimulus_NewDeal

# H2_EconomicStimulus_NewDeal - Fighting Recessions and...

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Fighting Recessions and Depressions Using Economic Stimulus Programs

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This lecture 2 Big Questions Currently the USA and other major world economies are going through tough economic times. President Obama has just signed an economic stimulus plan. What is the plan?
New Plan New plan is called the “American Recovery and Reinvestment Act” (ARRA) No catchy acronym or slogan but plan has a budget of \$787 billion dollars. How much is \$787 billion? If you spent \$1 million every single day and earned NO interest, you would have to start spending …….

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Why are Politicians trying to stimulate the economy? Long Run USA Output is Up Graph of USA Real Gross Domestic Product (Billions of 2000 \$) Since 1929 U.S. real economy grew about 13 fold. \$0 \$2,000 \$4,000 \$6,000 \$8,000 \$10,000 \$12,000 1929 1935 1941 1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
The Problem While long run GDP is up, in the short run some times USA is above and some times below trend. Trend is dotted line on graph of quarterly real (2000 \$) GDP which is the solid line

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John Maynard Keynes The General Theory of Employment, Interest and Money” (1936). Key point: In periods when the economy is stuck, government intervention using fiscal and monetary policies can eliminate recessions and control economic booms. Simple Idea: GDP = C + I + G + X – M When C or I falls then G should increase to offset the fall. When C or I rises then G should fall to counteract the rise.
This Rise and Fall The rise and fall is called counter cyclical fiscal policy. Government spending runs counter (against) the spending done by other sectors. Have there been other giant stimulus packages?

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Franklin Roosevelt 1882-1945 32 nd President and cousin of Teddy Roosevelt (26 th President) NY Senator in 1910 Assistant Secretary of the Navy during WWI Struck by polio at age 39 Inaugural address “the only thing we have to fear, is fear itself.”
New Deal Actually two New Deal programs. During first 100 days in office in starting in 1933 Roosevelt proposed and enacted Program to bring recovery to business Agriculture programs Relief to the unemployed Relief to those in danger of losing farms and homes Establishment of the Tennessee Valley

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Relief to the Unemployed 1 st big program was called the Civilian Conservation Corps or CCC. CCC hired unemployed young men and sent them to rural areas and forests where they Planted millions of trees Created roads Drained swamps Paid \$25 per month \$20 automatically sent back home to family
Acadia National Park in Maine Is one place the CCC did a huge amount of work

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The CCC Was Not Just…. Today we remember the CCC as a
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H2_EconomicStimulus_NewDeal - Fighting Recessions and...

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