ECON 2200 Lecture 45: ECON 2200 lecture 45
14 May 2018
School
Department
Course
Professor
ECON 2200
Lecture 45
o Impact: Wealth & Psychological
1. Affected people’s confidence about the future of the
economy
Anything that undermines consumer confidence
effects the economy, because people will not spend
when they do not feel good about their economic
future.
• Long, slow recovery:
o Real GDP did not reach & maintain pre-Depression rates until
late 1930s
o Manufacturing did not do so until 1939-40
• Smoot-Hawley Tariff (1930)
o A general, broad tariff that included many agricultural products;
however, there was not really a lot of agricultural imports to the
US. It was really a solution to a problem that didn’t exist.
1. They wanted it, got it, but weren’t really helped by it.
• Bottom Line: Government programs largely ineffective because
supply was very price elastic.
o Price elasticity of supply = How responsive is quantity of supply
= % of Qs / % of P
1. If PES > 1 = elastic
Farm products have elastic supply = % of Qs > % of
P
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Document Summary
Impact: wealth & psychological: affected people"s confidence about the future of the economy. = % of qs / % of p: if pes > 1 = elastic. Farm products have elastic supply = % of qs > % of. P: if pes < 1 = inelastic, government programs encourage additional output and create surplus, bust: the crash of "29, sept 1929: A mild decline in consumer durables market began. In hindsight, many economists feel this was the beginning of a recession. By october 1929, investors in stock market begin to feel nervous . The stock market peaked. (table 22. 4: mid-to-late oct 1929: stock prices began to decline rapidly. 13 mill shares traded (> 4x normal trading) Ny banks & financiers eased situation by buying. As prices fell, this group propped up the market by buying and slowing price declines. To some extent, they were effective in slowing the downturn. Following week panic resumed: black tuesday (10/29/29)
