Macro objectives and policies Flashcards
The Great Depression
Key stats in the US
- Unemployment = 25%
- worldwide trade decreased by 33%
- Worldwide economic output decreased by 50%
Gold standard: money could be exchanged for gold, problem was that everyone wanted to swap their money for gold and so the supply of gold was quite low..?
US responses to great depression
- Herbert Hoover put trade protectionism measures on bananas, wheat and sugar
led to trade wars where protectionism fight between US and other countries - led to less world trade and
- contractionary fiscal policies implemented as a result
- increased interest rates to decrease amount of people swapping money for gold
- When Franklin Roosevelt elected, he introduced the NEW DEAL plan (like Green New Deal of Biden’s) - opposite of Hoover by allocating 10.7% of GDP for government spending
- abandoned the gold standard by making it illegal, and so now decreased interest rates (expansionary monetary policy)
- removed trade restriction
UK depression impacts and responses
trade decreased by 50%
Economy contracted by 5% and unemployment rose by 70%
UK = contractionary fiscal policy in order to balance the budget
UK then chose to leave the gold standard in 1931, 2 years before the US (YES) -> had better money supply and low interest rates before the US -> recovered significantly faster than the US
UK response and impacts to Great Recession
- Real GDP fell by 10%
- unemployment doubled
- world trade was disturbed
Reduced its interest rates from 5.75% to 0.5% to stimulate AD
Quantitative easing was used (expansionary monetary) and cutting interest rates
Expansionary fiscal policy - 2.2% of GDP by gov
Increased spending on healthcare and education
