Download great_recession

The Great Recession and
Jobless Recovery
Chapter 12
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The Economy Prior to the Recession
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Federal Funds Rate
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The economy seemed to be going along pretty well then
as discussed in the previous lecture notes:
•The housing bubble burst starting in 2006
•That lead to the subprime mortgage crisis
•That spread and lead to a huge financial meltdown
summer-fall 2008
•After than stock market fell
•Unemployment rose
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Dow Jones
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Federal Funds Rate
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Real GDP (Billions)
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Unemployment Rate
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Net Job Creation
(All employees, thousands)
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What is going on with Jobs?
• This is the Million Dollar question
• We don’t really know:
• Measured by GDP it looks like economy has recovered
• Measured by unemployment things are not good
• For some reason employers are not hiring workers
• Possible Explanations:
• Could be structural-the types of employers that are looking to hire
are different than the types of workers that are looking for jobs
• Uncertainty about economy: employers are worried about a
double-dip recession and don’t want to work until they know for
sure
• Uncertainty about policy: What will happen to taxes and deficit?
• Unemployment Insurance: Workers might not want to go back until
the unemployment insurance expires
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Policy Responses
• We have talked in previous lecture notes about this
• There were a number of different important responses:
• The fed was aggressive with quantitative easing and interest rate
cuts throughout
• Bush stimulus: Rebate of $600 per single person ($1200 married) in
spring 2008
• Troubled Asset Relief Program (TARP) in Fall 2008
• Obama Stimulus in early 2009
• We talked about this previously, but some additional detail
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Obama Stimulus Plan
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Plan Elements: Tax Cuts
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Plan Elements: Medicaid, Unempl.
Extensions, Health Insurance
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Plan Elements: Spending on Projects
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What NeXT?
• Lots of talk on the table
We are worried about jobs
At the same time also worried about the deficit
Democrats tend to want to tax the rich to pay for further stimulus
Republicans worry that the rich are “job creators” and that taxing
them will hurt job creation
• Not clear how this all will be resolved
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