Roosevelt America

What major event took place during his reign?

The great depression.

What did the great depression mean?

High unemployment and contraction of GDP.

Why is deflation a bad thing?

Even though it might mean lower prices for the consumers, it actually stops consumer spending because they believe prices are going to continue to drop and will not spend money currently. This also effects producers because they have no incentive to produce, so they stop producing because there’s no demand from the consumers.

In terms of AD/AS what does deflation mean?

It means there a drop/decrease in AD(aggregate demand)

What are Roosevelt 3 R’s

• Relief

• Recovery

• Reform

What did Roosevelt new deal mean for relief?

It aimed to aid those who were in need and suffering through:

• F.E.R.A- Direct cash grants

• CCC(Civlivan Conservation Corps)-Which employed young and unemployed men to do conservation works

• PWA(Public Works Administration)-Employed unemployed citizens to do public works such as building parks,bridges,roads and schools

It resulted in hope and prevented starvation

What did Roosevelt new deal mean for reforms?

Long term reforms:

• FDIC:Insured deposited money; rebuild trust with depositers that their money is safe

• Social Security Act: protecting people from poverty at old age

• National labour law: Improved working standards and protected workers

What did Roosevelt new deal mean for recovery?

It acted as a temporary government intervention to revitalize the economy through:

• AAA-Agricultural prices were raised because a good portion of the population was still involved in agriculture.

• Nira(National Industrialization Recovery Act): Stablized industrial production and prices. Needed due to the price wars that were taking place as firms tried to attract the most number of customers and this caused them to cut down production costs by reducing wages paid to the people which in turn decreased the people’s purchasing power which could lead to a deflation it not checked. So the government implemented minimum price and minimum wage.

• Emergency banking relief act: Stabilize the banking system by auditing banks and those deemed financially unfit were closed.

Why is AS in the short run upward slopping?

Because wages are sticky and don’t adjust to inflation(inflation data is produced each month) during the short term, so the profits gained by firms are upward slopping because as production increases wages stay the same causing cost of production not to increase as much.

However in the long-run consumers have complete knowledge about the wages they are earning in relation to inflation.

Challenges of demand management

Limited information: it’s hard for governments to know how much to spend in order to raise AD.

Debt financing: In order for governments to cover private sector spending they might have to borrow and means they will have to pay interest on those loans and if this continues for a while the debt to GDP ratio of the country can increase and this will label the country as a high risk investment and in order to get the money the country will now adopt high interest rates which decrease consumption and investment activities and can also lead to the country defaulting on payments.