economy
The world's largest economy by nominal GDP, the United States has a highly developed mixed economy.
general notes
mixed economy: includes both elements associated with capitalism (private businesses, for example) and socialism (nationalized government services)
highly developed: sovereign (independent) state with high quality of life, developed economy, advanced technological infrastructure
second largest by purchasing power parity (PPP)
US dollar is most used in international transactions and is world’s reserve currency
other countries use it as their official currency, others as de facto currency
world’s largest producer of petroleum, natural gas
highest number of billionaires
New York Stock Exchange and Nasdaq are world’s largest stock exchanges by market capitalization and trade volume
has largest gold reserves
money people use for everyday buying and selling, even if it’s not the official (legal) currency
compares what different currencies can buy by adjusting for cost-of-living differences across countries
financial crises and federal intervention
The Great Depression (1929-1939)
the severe worldwide economic downturn, lasting ten years
high rates of unemployment, poverty, drastic reductions in industrial production and international trade, widespread bank and business failures
began with devastating Wall Street stock market crash in October 1929
people borrowed money to buy stocks, hoping prices would keep rising
speculation: many bought stocks on margin (borrowing most money to pay for them)
overvalued stocks: prices went up much faster than companies’ real profits did, so stocks became more expensive than they were worth
panic selling: everyone rushed to sell at once because investors got scared prices were too high, sudden wave of selling caused prices to plunge
Black Thursday: 12.9 million shares traded (October 24, 1929)
Black Tuesday: 16.4 million shares traded (October 29, 1929)
banks failed because they lent money to buy stocks and didn’t get paid back
businesses cut production and fired workers to save money
no jobs and no savings = less spending
precise causes for Great Depression are disputed
some view Wall Street crash as main cause
others think crash was mere symptom of more general economic trends of the time, underway in the late 20’s
failures of monetary policy, lack of adequate response to crises of liquidity that followed initial shock of 1929
2008 Financial Crisis
major worldwide financial crisis centered in the US
caused by excessive speculation on housing values by homeowners and financial institutions
2000s US housing bubble: sharp run up and then collapse of house asset prices due to subprime mortgage crisis
housing prices kept going up and people thought it would keep going, so they bought houses they couldn’t really afford
banks made it easy by giving out risky mortgages (subprime loans to people with poor credit)
low interest rates and loose lending standards made borrowing cheap and easy
speculation: people buying homes to sell them later for a profit (flipping)
demand for houses soared and pushed prices even higher
bad regulation: government didn’t step in to control risky lending and bad financial practice
when people couldn’t pay back their mortgages, many homes went into foreclosure
housing prices plummeted because there were too many houses for sale and not enough buyers
banks lost huge amounts of money because the “safe” mortgage investments collapsed
the bubble burst!
lender takes possession of the house because mortgage was not paid
Great Recession of 2007-2009
period of market decline in economies around the world from late 2007 to mid-2009
most severe economic and financial meltdown since the Great Depression
began with bursting of US housing bubble
no known formal theoretical or empirical model able to accurately predict the advance of this recession
recession varied from country to country
not felt equally over the world, mostly in North America, South America, Europe
recently developing economies like China, India, Indonesia, Oceania suffered far less impact and even grew
American Reinvestment and Recovery Act of 2009
stimulus package by President Barack Obama in February 2009 in response to Great Recession
goal to save existing jobs and create new ones
based on Keynesian economic theory that during recessions government should increase public spending
politics surrounding the stimulus
Republicans criticized the size of the stimulus
spurred the Tea Party movement, a conservative political movement that called for lower taxes and reduction of national debt and federal deficit
led to the 2010 wave election where Republicans took control of US House of Representatives
most economists agree the stimulus was smaller than needed
Democratic president who served from 2009 to 2017
party views
democrats, in general....
support more government involvement in managing the economy
favour higher taxes on the wealthy and big corporations to fund public services
support more spending on social programs
prefer more rules to protect workers, consumers, and environment
tend to support raising minimum wage
republicans, in general....
prefer less government intervention and more free markets
support lower taxes to encourage investment and job growth
cutting government spending and reducing the national debt
prefer fewer regulations to help businesses grow and innovate
often oppose big increases in minimum wage, arguing it can hurt small businesses and reduce hiring