Final Essay Preparation The “Great Recession” of 2008

Final Essay Preparation

The “Great Recession” of 2008

Final AP Essay

1. Briefly discuss the major economic challenges facing the USA.

2. Analyze 2 important solutions to the structural problems facing the USA which will help it prosper in the 21st century

80 points40 minute college level essayUse at least 2 AP Econ Graph in your essay

Speculative Bubbles

Holland 1634 - 1637

1996 - 2000USA 2002 - 2007

Economy 2000 - 2012

Caused by

Credit Bubble

Led to

1996 - 2000

U.S. Economy in 2012

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

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P1

Q1

E1

Major Economic Challenges

1)

The American Dream?

http://www.npr.org/2012/05/29/153513153/american-dream-faces-harsh-new-reality

New Labor TrendsOver the past 15 years Labor has significantly changed

Globally:Globalization: “free trade” with other countries

Collapse of Soviet Union & Communist EconomiesChina & India emerge as economic powers (GDP growth > 10%)

European Union forms common currency (now what?)

Worldwide free flow of financial capital & labor (financial crisis)

United States: Unions are declining in power Less “Job Security” Declining Manufacturing Jobs Rising Demand for Educated Workers

↑ Gap between Rich & Poor

Bottom 20% Top 5%

Income Distribution

+56.0%+ 1.0%Change:

The pay gap widens in USA!

Qty

D1

S1

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P1

Q1

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Low-Skilled Labor

Qty

D1

S1

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P1

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College Educated Labor

Qty

D1

S1

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P1

Q1

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College Educated Labor

D2

D2

Top 1%

Great RecessionSlow Recovery

Slow Job Growth---Declining Labor Force Participation

GDP GDP GDP

What creates real economic growth?

AD1AD1

LRAS1PriceLevel

RealGDP

SRAS1LRAS1PriceLevel

RealGDP

SRAS1

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Q1

E1

Keynes vs. Hayek

• http://www.youtube.com/watch?v=GTQnarzmTOc

Animal Spiritsversus

Malinvestment

What Good Are Economists Anyway?

Economic Solutions?

Inside Job

FNMA & FHLMC

Government takeover

AIG Insurance Company

Government Takeover

Wall Street Firms Bankrupt or Bought

Bear StearnsMerrill LynchLehman Brothers

Current Problem

Gov’tTakeover