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Lecture 2 Slides - Economics 134 Spring 2012 Christina...

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L ECTURE 2 Overview of the Great Depression January 19, 2012 Economics 134 Christina Romer Spring 2012 David Romer
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I. E VOLUTION OF THE M ACROECONOMIC E NVIRONMENT
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The U.S. was a major industrial power by the late 1800s. 6 16 26 36 46 56 66 76 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 Percent Fraction of Workers in Agriculture
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Nominal Rigidity Developed over the 1800s. Was substantial by early 1900s. May have gotten greater in the 1920s.
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Rise of Macro Policy Federal Reserve founded in 1913 Income tax introduced in 1913 Government spending increased substantially around World War I.
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Government Spending as a Percent of GDP Spending rose as a share of GDP in WW I and after.
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II. T HE 1920 S
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What were some features of the economy in the 1920s?
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Issue: Was GDP growth above the growth rate of potential output? 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 -20 -15 -10 -5 0 5 10 15 Percent Real GDP Growth, 1919-1929 GDP Growth
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1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 -20 -15 -10 -5 0 5 10 15 Percent Real GDP Growth and Inflation 1919-1929 Inflation GDP Growth
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Issue: What role might increasing inequality play in reducing aggregate demand?
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