Debt & Sticky Prices

Debt & Sticky Prices - Federico Nusymowicz Lecture 22...

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Federico Nusymowicz Lecture 22 Explain what have happened with the debt levels of households, corporations, and the Government in the U.S. during the last 50 years. Use the handout on Outstanding debt from Lecture 22. In 1950, the government’s outstanding debt to GDP ratio was high (almost 0.9), which is expectable right after WWII. From then on, it showed a steadily declining pattern right up to 1981, when Reagan’s administration began in full swing and drove government debt back up. This pattern continued right up until 1996, when the debt ratio slightly decreased, only to start climbing back up again during the 2001 recession to the current level of 0.64. The corporate debt to GDP ratio is much easier to explain because it has followed, for the last 5 decades, a clear upward trend with relatively few fluctuations. Starting at 0.52, today the ratio is more than double, at 1.16. The household debt to GDP ratio shares this pattern, with the notable exception of a plateau from the late 60’s to the early 80’s, within which the ratio fluctuated between .45
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This note was uploaded on 06/26/2008 for the course ECON S-10ab taught by Professor Medoff during the Summer '07 term at Harvard.

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