Post WWII US Business Cycles

Question 1

What is one explanation offered by economists for the strong 1961-1969 expansion?

Answer 1

Military buildup to fight the Vietnam War.

Question 2

Briefly describe the recession of 1973-1975.

Answer 2

Causes:

• Inflation had been trending higher during the 1960’s.
• Organization of Petroleum Exporting Countries succeeded in quadrupling oil prices in the fall of 1973.

Recession:

• Lasted 16 months.
• Between 1973 and 1975 real GDP fell by 3.2%
• Unemployment rate reached 9%.
• Inflation shot up to double-digit levels.

Question 3

Briefly describe the recession of 1981-1982.

Answer 3

Cause:

• Inflation was at 11%.
• Many economists claim that the Fed sent the economy into a recession in their efforts to tame high inflation.

Recession:

• Lasted 16 months, from 1981-1982.
• Unemployment reached 10.8%
• Paul Volker is successful in lowering inflation from 11% down to about 4%.

Question 4

Briefly describe the Great Recession of 2007-2009.

Answer 4

Causes:
From 1997 through 2005 home values increased significantly. When the demand for home began to wash up, mortgage brokers began to target less qualified borrowers in order to keep making loans.

When home prices began to decline in 2006, many homeowners saw themselves owing more in mortgage payments than their home were worth. Others who had not been qualified to take out mortgages in the first place began to default on their loans. Banks soon found themselves incapable of valuing many of their assets nor the assets that they had bundled up and sold to investors around the world.

Recession:

• Huge loss of wealth across the board.
• Banks went belly up and required bailouts from the government.
• Unemployment hit 10% (about 8.7 million jobs destroyed)
• Long-term unemployment rose to unprecedented levels.
• From the peak of December 2007 through the trough on June 2009, real GDP fell 4.7%