Recession and Stabilization Policies

# Reading the Macroeconomy: Recessions and Stabilization Policy

Presented by: Andreas Schaab

# Recessions and Depressions

FRED - Real Gross Domestic Product

  • Graph Information: Showcases percent change in Real Gross Domestic Product (GDP) over decades

  • Data Points:

    • Shaded areas indicate U.S. recessions

    • Timeline spans from 1950 to 2020

    • Source: U.S. Bureau of Economic Analysis via FREDⓇ

FRED - Unemployment Rate

  • Graph Information: Illustrates the unemployment rate from 1950 to 2020

  • Key Statistics:

    • 30% Depression-era peak: 25.6% unemployment

    • April 2020: 14.7% unemployment

  • Data Source:

    • National Bureau of Economic Research (NBER)

    • Bureau of Labor Statistics (BLS)

    • Data adjusted for seasonality

Historical Unemployment Statistics

  • Comparative Data:

    • Dec 1931: 19.10% unemployment

    • May 1933: 25.59% unemployment

  • Notable Event:

    • Oct 29, 1929: Stock Market Crash

    • Important for contextualizing unemployment trends

  • Data Source: National Bureau of Economic Research via FRED

# Societal Impact of Unemployment

  • Societal Messages:

    • Emotional appeals regarding joblessness

    • Reflection on the plight of job-seekers

    • Imagery of desperation and the demand for meaningful employment

# Are Recessions Efficient?

Theoretical Framework

  • Core Question: Are recessions efficient?

  • Understanding Efficiency:

    • If an economic state is efficient, government intervention might be unnecessary.

    • If recessions are deemed efficient, this suggests limited governmental role in recovery.

Historical Perspectives

  • Samuelson (1948):

    • Economically, recessions can lead to unemployment and reduced income, affecting everyone without discrimination.

    • Quote: "There is no vaccination or advance immunity from this modern-day plague."

    • Critique of the sustainability of democratic systems when economic stability is undermined by unemployment

Efficiency Conversations

  • Recession Impacts:

    • High unemployment leads to colossal wastage of resources

    • Implication that economic efforts might overlook the real inefficiencies tied to unemployment

  • Blinder (1987):

    • Emphasizes that searching for economic efficiency has traditionally ignored the inefficiency of unemployment.

# Stabilization Policy

Definition

  • Stabilization Policy:

    • Economic policies formulated to mitigate fluctuations in business cycles and stabilize macroeconomic volatility

  • Types:

    • Two primary types of stabilization policies:

    1. Fiscal Policy

    2. Monetary Policy

Fiscal Policy

  • Components of Fiscal Policy:

    • Government spending

    • Tax rebates

    • Unemployment insurance

    • Changes in tax structures

    • Various forms of transfers and aid

Monetary Policy

  • Components of Monetary Policy:

    • Function as the lender of last resort to ensure financial stability

    • Control over interest rates

    • Regulation and adjustment of money supply

Certainly! Here's a description of each graph mentioned in the notes:

  • FRED - Real Gross Domestic Product: This graph showcases the percent change in Real Gross Domestic Product (GDP) over decades, specifically from 1950 to 2020. Shaded areas on the graph indicate periods identified as U.S. recessions. The data for this graph is sourced from the U.S. Bureau of Economic Analysis via FRED.

  • FRED - Unemployment Rate: This graph illustrates the unemployment rate, also spanning from 1950 to 2020. Key statistics highlighted include a Depression-era peak of 25.6% unemployment and a more recent peak of 14.7% unemployment in April 2020. The unemployment data is adjusted for seasonality and is sourced from the National Bureau of Economic Research (NBER) and the Bureau of Labor Statistics (BLS).