Questions:
1. How did the Great Depression start?
The Great Depression originated in the US starting with the fall in stock prices that began around September 4th, 1929 and became worldwide news with the stock market crash on October 29th, 1929, known as Black Tuesday.
2. How did the current recession start?
The demand for housing properties started increasing due to high liquidity and low interest rates on mortgage loans. People started buying homes using these loans not knowing that this would in return cause residential property prices to increase. The prices increased exponentially and people who already owned homes, opted for refinance at lower interest rates.
At the same time, Banks were lending mortgage loans to everyone who asked for it, considering the property price hike. On one hand, they would get their money back even if the borrower doesn't repay the loans and on the other hand the banks were selling their loan products to investment companies who packaged them into MBS and sold them in the open market. This resulted in the bank getting back almost their entire loan amount which they started lending to further subprime customers.
The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, the lack of high-growth new industries, and growing wealth inequality, all interacting to create a downward economic spiral of reduced spending, falling confidence, and lowered production.
3. How did the government take part following the event? Were /are they successful attempts?
The Government took part in the great depression by introducing employment programs to help employ numerous people that were greatly affected by the depression. They also increased the interest rates to maintain the worth of the US currency. However their efforts did not help the situation greatly, until WWII as they needed a substantial amount of people to be employed.
During the current recession, the US government had handed out bail-outs to several corporations most notably: AIG, General Motors and Chrysler LLC. However they didn’t offer a bailout to Lehman Brothers and as a result, they filed for Bankruptcy.
4. What factors are present now that were not present during the Great Depression? (ie. Banking, online resources, etc.)
What is present now that wasn’t present during the Great Depression is probably credit card payment methods. People are able to apply for a credit card at a bank and with this card they are given the priviledge to be able to not pay for the “amount owed” right away but to have an extended period of time to pay the “loan”. What is bad about this however, is the fact that a lot of people don’t end up having enough money paying for their credit card spendings due to overly high credit limits.
5. How did these two affect United States’ GDP?
In the times of both the Great Depression and the current recession, the United States GDP decreased drastically. Around the 1920s, the United States GDP peaked at around $1 trillion dollars. However, since they were in a depression, the dollar value went down. Many people lost their jobs due to a decrease in the consumer behaviours. As a result of all these events happening, they contributed to the low GDP of United States of $600 billion. The United States lost over $400 billion during the Great Depression.
Same with the current recession, it has dropped the United States GDP, decreasing its dollar value.
6. Reflection: In your own words, tell me which one has made more of an impact on the world.
I believe the Great Depression in the 1920s has made a bigger impact on the world because at that time, no one was ready for this to happen. No one knew how to respond to such a great event that changed United States overnight. But as the years passed, the country has learned to cope with the consequences, therefore, if anything like this was to happen again, the people and nation would have more preparation instead of getting hit all of a sudden with the Great Depression and going into a mess.
Sources:
http://answers.yahoo.com/question/index?qid=20080220160718AAeaThR
http://wiki.answers.com/Q/How_did_your_current_recession_start
http://en.wikipedia.org/wiki/Recession
http://en.wikipedia.org/wiki/Great_Depression
http://www.actionplan.gc.ca/eng/feature.asp?featureId=18
Sunday, April 10, 2011
Wednesday, April 6, 2011
Chapter 6 - Aggregate Demand
source: http://www.worldnewsco.com/3150/food-prices-increase-44-million-people-risk-poverty/
Summary
Recent studies has shown that world food prices increase has caused 44 million people in developing countries at the brink of poverty, or already experiencing poverty. The result of food price increases has caused an reduction in nutritional intakes because poor people will be forced to consume foods that are cheaper and low nutrients. The price of corn is the food price that experienced the highest increase. Cornflour or cornstarch rose 73% and this is crucial for poor countries.
Connection
This is related to the topic of aggregate demand in Chapter 6 surrounding the factor of price. Price and price changes are likely to influence the level of consumer spending. Households may cut back in response to price increase, but in some cases they may increase spending in case of even higher price inflation. This particular event has caused many families to take a toll in their lives.
Reflection
I feel that action should be taken to cure this problem, whether it be avoid food export restrictions or increasing the investment in agriculture. But people going into poverty and at the risk of death is very scary. This would cause many families to become unhealthy due to not enough nutrition taken in daily. If people are running out of money and becoming poor due to food, then chances are no one is going to make any purchases of anything else. Therefore makes a down turn for the economy.
Summary
Recent studies has shown that world food prices increase has caused 44 million people in developing countries at the brink of poverty, or already experiencing poverty. The result of food price increases has caused an reduction in nutritional intakes because poor people will be forced to consume foods that are cheaper and low nutrients. The price of corn is the food price that experienced the highest increase. Cornflour or cornstarch rose 73% and this is crucial for poor countries.
Connection
This is related to the topic of aggregate demand in Chapter 6 surrounding the factor of price. Price and price changes are likely to influence the level of consumer spending. Households may cut back in response to price increase, but in some cases they may increase spending in case of even higher price inflation. This particular event has caused many families to take a toll in their lives.
Reflection
I feel that action should be taken to cure this problem, whether it be avoid food export restrictions or increasing the investment in agriculture. But people going into poverty and at the risk of death is very scary. This would cause many families to become unhealthy due to not enough nutrition taken in daily. If people are running out of money and becoming poor due to food, then chances are no one is going to make any purchases of anything else. Therefore makes a down turn for the economy.
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