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The Great Recession. Contraction/Recession. Two consecutive quarters of slower economic activity The Great Recession lasted from December 2007 to June 2009 Total of 18 months. Causes of the Great Recession. 1. Housing bubble burst—housing prices fell dramatically - PowerPoint PPT Presentation
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The Great Recession
Contraction/Recession Two consecutive quarters of slower economic
activity The Great Recession lasted from December
2007 to June 2009 Total of 18 months
Causes of the Great Recession 1. Housing bubble burst—housing prices fell dramatically
2. Defaults on subprime mortgages--$1 trillion outstanding
3. Exposure to bad mortgages caused financial failures Bear Stearns rescued Lehman Brothers—largest bankruptcy in history
Causes of the Great Recession Other conditions: Easy credit—low interest rates and easy
money policy Lack of regulation—can’t keep up with new
financial instruments (CDS, CDO) Credit rating agencies Lack of transparency of banks TOO MUCH RISK “moral hazard” Shadow banking
Causes of the Great Recession What Does Moral Hazard Mean?
The risk that a party to a transaction has not entered into the contract in good faith, has provided misleading information about its assets, liabilities or credit capacity, or has an incentive to take unusual risks in a
desperate attempt to earn a profit before the contract settles (investopedia)
Real GDP
Unemployment Rate
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecAnnua
l
2007 4.6 4.5 4.4 4.5 4.4 4.6 4.7 4.6 4.7 4.7 4.7 5.0
2008 5.0 4.8 5.1 4.9 5.4 5.6 5.8 6.1 6.2 6.6 6.8 7.3
2009 7.8 8.2 8.6 8.9 9.4 9.5 9.5 9.7 9.8 10.1 9.9 9.9
Bureau of Labor Statistics http://data.bls.gov/pdq/SurveyOutputServlet
Monthly job loss
Money Supply
Money Supply
Interest Rates
Interest Rates
Interest Rates
Inflation and price level
Inflation and price level
Interest rates
Housing starts
Mortgages gone bad
Consumer confidence
Why was this “Great” Correlations when things changed Full employment Government involvement
bailouts—GM=$50 B, AIG=$85 Bstimulus--$787 B Recovery.govunemployment benefit extension
Now what? What should we learn? Banking Consumers Government’s role?
What will you tell your grandchildren about the Great Recession of 2007-2009?
Include the business cycle description in your story. Use some statistics to support your story. You can include your opinion about banks, consumers, and the government! If you do any outside research besides the slides, you must cite the source (in the story, i.e. According to the Wall Street Journal on June 10, 2008,…….)
Formative grade—10 points.
Point distribution: 1-3 --you did tell a story, but it was short and
sweet without much information 4-6 –your story had 2 statistics and some
information on the conditions of the recession 7-8 –nice story including 3 statistics and
information on conditions and causes 9-10 –great story including 3 statistics, info on
conditions, causes and opinions