The Great Depression - Part 1

The Great Depression - Part 1 - Emily Pitts ECON 2200 Page...

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Emily Pitts ECON 2200 Page 1 of 9 The Great Depression: Part 1 Chapter 23 I. Key Economic Indicators (Figures 23.1 - 23.4): m Note both the depth & the duration of the decline. Things that made it “Great” m 1929-1933: Real GDP fell by 1/3 (Nominal < Real = Deflation) Industrial output fell by ½ Gross investment (I) reduced to almost nothing (took longer to recover than real GDP) I < replacement rate Replacement rate = the level necessary to maintain the current capital stock Real capital stock actually declined! Consumer durables output fell by 80%, and did not fully recover until 1940. C By comparison, consumer durables output fell by 43% in early – 1920s recession. However it had fully recovered by 1923 I production capacity Unemployment Rate: 1929: UR = 3.2% (1.5 million) 1933: UR approaching 25% 11.5 mill unemployed 2.2 mill in government-created emergency jobs Many more were “underemployed”: working, but for fewer hours than desired or at a job that does not fully utilize worker’s human capital 1933 estimate of an “unemployment” rate that includes: (1) official unemployment + (2) government emergency workers + (3) underemployed 33% of labor force Duration UR remained > 10% for a decade Many never recovered The Great Depression: Part 1 Page 1 of 9 Note that recovery isn’t complete until the economy reaches + maintains its pre – Depression levels of output
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Emily Pitts ECON 2200 Page 2 of 9 m Deflation: 1929-1933: CPI fell by 25% m Bank Failures: 1930-33: nearly 10,000 banks closed About 1/3 of banks that existed in 1929 had failed by 1933. Billions of dollars in depositor & shareholder losses m Stock Prices: S&P Composite Index (annual average): 1929: $26.02 1932: $6.93 1929-33: $85 billion in stock losses Impact: Wealth (Fig 23.4) & Psychological While Stock Market “crashes” typically don’t cause recessions, the wealth losses + negative expectations can add to recessionary pressures + extend the duration of the recession m Long, slow recovery: Real GDP did not reach & maintain pre-Depression rates until late 1930s Manufacturing did not do so until 1939-40 II. Factors Contributing to the Decline A. Recall the structural weaknesses we identified in the 1920s economy: The Great Depression: Part 1 Page 2 of 9 P - Level AS Real GDP GDP 1 AD 1929 AD 1933 GDP 2 P 1 P 2
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Emily Pitts ECON 2200 Page 3 of 9 Esp. residential, but also commercial m After 1925: Big decline in construction sector Over-building (1918-25) led to market saturation
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This note was uploaded on 09/21/2011 for the course ECON 2200 taught by Professor Moore during the Spring '07 term at University of Georgia Athens.

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The Great Depression - Part 1 - Emily Pitts ECON 2200 Page...

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