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March 01, 2005

20050301 Econ 113 Lecture: Great Depression: Building Tools

20050301 Econ 113 Lecture: Great Depression: Building Tools

1929: The stock market crash

1929-1933: The slide into the Great Depression

1933-1940: The New Deal

1941-1945: Rearmament and World War II

The Magnitude of the Great Depression

One of the problems with this course: people come from everywhere...

So today will be a "tools" lecture--a macroeconomic refresher course...

Closed Economy--international trade does not matter for the U.S. Great Depression (debate over this ranging down the southern hall of the sixth floor of Evans)

Basic Macro:

C + I + G = Y

C = C0 + Cy(Y-T)

I = I0 - Irr

C0 + Cy(Y-T) + I0 - Irr + G = Y

Y = (C0 + I0 + (G - CyT)/(1-Cy)

Talk about parameter values...

On to the monetary side:

MV = PY gets us to P = (V/Y)M = (V/Y)mH: Two things can put downward pressure on the price level:

Four stories about the Great Depression:

  1. FALSE--Hayek--I0 falls because of a previous capital glut: do nothing to fight the Depression
  2. HALF-TRUE--Friedman--the Great Depression came about because of a monetary contraction: the Fed allowed M to fall. But the fall in M comes about because of a fall in m, not in H. What triggers the fall in m? (Reformulate Friedman: without extraordinarily stimulative monetary policy, the system is unstable.
  3. MOSTLY-TRUE--debt-deflation triggered by the stock market crash.... But immense structural weaknesses...

Big problem with (3): why didn't something like the Great Depression happen earlier? Why was there only one Great Depression?

Next time: we'll consider six factors:

Driven by two initial impetuses:

Posted by DeLong at March 1, 2005 01:07 PM