Principles of Economics- Mankiw (5th) 699

Principles of Economics- Mankiw (5th) 699 - CHAPTER 31 A G...

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CHAPTER 31 AGGREGATE DEMAND AND AGGREGATE SUPPLY 723 CASE STUDY TWO BIG SHIFTS IN AGGREGATE DEMAND: THE GREAT DEPRESSION AND WORLD WAR II At the beginning of this chapter we established three key facts about economic fluctuations by looking at data since 1965. Let’s now take a longer look at U.S. economic history. Figure 31-9 shows data on real GDP going back to 1900. Most short-run economic fluctuations are hard to see in this figure; they are dwarfed by the 25-fold rise in GDP over the past century. Yet two episodes jump out as being particularly significant—the large drop in real GDP in the early 1930s and the large increase in real GDP in the early 1940s. Both of these events are attrib- utable to shifts in aggregate demand. The economic calamity of the early 1930s is called the Great Depression, and it is by far the largest economic downturn in U.S. history. Real GDP fell by 27 percent from 1929 to 1933, and unemployment rose from 3 percent to 25 To sum up, this story about shifts in aggregate demand has two important
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