CASE STUDY ON DEPRESSION AND RECESSION( 2001)

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UNDERSTAND THE CASE STUDY ABOUT HOW THE AGGREGATE DEMAND AND AGGREGATE SUPPLY IS AFFECTED WITH THE CHANGE IN EVENT OCCURRED IN ECONOMY

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  • Starting in mid-2000, the S&P 500 begins a downward trend. The fall in stock prices eroded the wealth of millions of U.S. consumers. They responded by reducing consumption.
  • CASE STUDY ON DEPRESSION AND RECESSION( 2001)

    1. 1. BY:- GROUP 10 ANJALI GUPTA PRIYANKA SINGH VINEETH POLIYATH MEHUL AMODWALA NENSI LAD GROUP PRESENTATION -4
    2. 2. TWO BIG SHIFT IN AAREGATE DEMAND: THE GREAT DEPRESSION AND WORLD WAR II
    3. 3. AGGREGATE DEMAND <ul><li>Aggregate demand planned expenditure for goods and services in the economy. </li></ul><ul><li>=C+I+G+(X-M) </li></ul><ul><li>C :consumer expenditure of goods and service. </li></ul><ul><li>I : gross domestic fixed capital formation. </li></ul><ul><li>G : general government final consumption. </li></ul><ul><li>X : export of goods and services. </li></ul><ul><li>M : import of goods and services. </li></ul>
    4. 4. SHIFT IN AGGREGATE DEMAND <ul><li>Reasons: </li></ul><ul><li>Shift arising from changes in consumption. </li></ul><ul><li>Shift arising from changes in investment. </li></ul><ul><li>Shift arising from changes in government. </li></ul><ul><li>Shift arising from changes in net export. </li></ul>
    5. 5. Shift in demand curve
    6. 6. Two Big shift in Aggregate Demand <ul><li>Great Depression: </li></ul><ul><ul><li>During the early 1930, the great depression, when the production of goods and services shorted. </li></ul></ul><ul><li>World war II: </li></ul><ul><ul><li>During the early 1940’s the united states entered world war II, and the economy experienced rapidly rising production. </li></ul></ul>
    7. 7. DEPRESSION <ul><li>Depression: A significant decline in the gross domestic product. </li></ul><ul><li>GDP means money spend on goods service, investment, research and labor in a country. </li></ul><ul><li>The great depression in the US and Europe after the stock market crash of 1929 showed a steadily decline GDP in the subsequent year. </li></ul>
    8. 8. DURING DEPRESSION <ul><li>In 1930, Real GDP fell by 27%. (1920 to 1933). </li></ul><ul><li>Unemployment rose from 3% to 25%. </li></ul><ul><li>Prices level fell 22% over these four year. </li></ul>
    9. 9. Debate arise on the causes of the great depression. <ul><li>Many economist place primary blame on the decline in the money supply. </li></ul><ul><li>From 1929- 1933 money supply fell 28%. </li></ul><ul><li>Blame Fed’s failure to act for the great depression’s severity. </li></ul><ul><li>Other economist suggested that alternative reasons for the collapse in aggregate demand. </li></ul><ul><li>e.g. stock price fell about 90%. </li></ul><ul><ul><li>Due to investment </li></ul></ul>
    10. 10. DURING WORLD WAR II <ul><li>In 1940’S world war II shift the aggregate demand curve. </li></ul><ul><li>Government have to devote more resources to the military. </li></ul><ul><li>Government purchase of goods and service increased almost fivefold from 1939 to 1944, which rise production about 20% in the price level. </li></ul><ul><li>Widespread government price control limited the rise in prices. </li></ul><ul><li>Unemployment fell from 17% to 1 % (1939-1944) the lowest level in US history. </li></ul>
    11. 11. SUMMARY <ul><li>We are introduces to the fact that the money supply fell dramatically during the great depression. </li></ul><ul><li>While the initial reduction was due to runs on the banks (in part because there was no deposit insurance) the Fed took no remedial action. </li></ul>
    12. 12. CASE STUDY: The U.S. recession of 2001
    13. 13. DECLINE IN REAL GDP INCREASE UNEMPLOYMENT US RECESSION 2001 STOCK MARKET CRASH INCREASE UNCERTAINTY
    14. 14. <ul><li>Experienced recession in 2001. </li></ul><ul><li>Unemployment rates rose from 3.9%(Dec 2000) to 4.9% (Aug 2001) and to 6.3% in June 2003. </li></ul><ul><li>However it was fallen back to 5.2% in Jan 2005. </li></ul>CASE STUDY: The U.S. recession of 2001
    15. 15. CASE STUDY: The U.S. recession of 2001 <ul><li>WHAT CAUSED RECESSION AND WHAT ENDED IT? </li></ul><ul><ul><li>The answer to both question is shifts in aggregate demand </li></ul></ul>
    16. 16. SHOCK 1: DURING 1990’s <ul><li>Investor bid up the stock prices, particularly of high tech companies. </li></ul><ul><li>Investor became optimistic about investing in information technology. </li></ul>
    17. 17. DURING 1990’s <ul><li>When optimism faded, and stock price fell by 25% from Aug 2000 to 2001. </li></ul><ul><li>Reduced household wealth which in turn, reduce consumer spending. </li></ul><ul><li>Less profit on new technologies lead to fall in investment </li></ul><ul><li>Aggregate demand shifted to the left. </li></ul>
    18. 18. CASE STUDY: The U.S. recession of 2001 <ul><li>Causes: 1) Stock market decline   C </li></ul>300 600 900 1200 1500 1995 1996 1997 1998 1999 2000 2001 2002 2003 Index (1942 = 100) Standard & Poor’s 500
    19. 19. SHOCK 2 : 9/11 ATTACK <ul><li>Week After the terrorists attack on New York and Washington on Sept 11, 2001, The stock fell another 12 %. </li></ul><ul><li>Biggest weekly loss since the Great Depression of 1930’s. </li></ul><ul><li>Increased Uncertainty which lead fall in consumer & business confidence </li></ul>
    20. 20. SHOCK 3: 3) Corporate accounting scandals <ul><li>During 2001 and 2002 several major corporations, including Enron and WorldCom were found to have mislead the public about their profitability. </li></ul><ul><ul><li>reduced stock prices, discouraged investor to investment. </li></ul></ul><ul><ul><li>Resulted the stock market to further depressed aggregate demand. </li></ul></ul>
    21. 21. CASE STUDY: The U.S. recession of 2001 <ul><ul><li>tax cuts in 2001 and 2003 </li></ul></ul><ul><li>Federal funds rate fell from 6.5% ( Dec ‘00) to 1% (June ‘03). </li></ul><ul><li>Money growth accelerated and interest rates fell. </li></ul><ul><li>Stimulated consumer and investment spending. </li></ul>
    22. 22. CASE STUDY: The U.S. recession of 2001 Three-month T-Bill Rate 0 1 2 3 4 5 6 7 01/01/2000 04/02/2000 07/03/2000 10/03/2000 01/03/2001 04/05/2001 07/06/2001 10/06/2001 01/06/2002 04/08/2002 07/09/2002 10/09/2002 01/09/2003 04/11/2003
    23. 23. <ul><li>Interest rate cut and tax cut both shifted aggregate demand curve toward right </li></ul>CASE STUDY: The U.S. recession of 2001
    24. 24. Summary <ul><li>The recession of 2001 show event that how the influence of Recession affect the aggregate demand and thus resulting to change in the direction of economy </li></ul>
    25. 25. CASE STUDY: Oil And The Economy
    26. 26. CASE STUDY: Oil And The Economy
    27. 27. <ul><li>The first episode of this sort occurred in the mid-1970s.The countries with large oil reserves got together as member of OPEC (The Organization of Petroleum Exporting Countries). </li></ul>CASE STUDY: Oil And The Economy
    28. 28. <ul><li>OPEC is cartel. Cartel means a group of sellers that attempts to thwart competition and reduce production to raise prices. </li></ul><ul><li>From 1973 to 1975 oil approximately doubled in price. </li></ul><ul><li>Due to this the world experience inflation and recession, Unemployment rose from 4.9% in 1973 to 8.5% in 1975. </li></ul>CASE STUDY: Oil And The Economy
    29. 29. <ul><li>In the late 1970s the OPEC countries again restricted the supply of oil to raise the price. </li></ul><ul><li>From 1978 to 1981 the price of oil was more than doubled, Once again the result was inflation and recession, Unemployment rose from 6% in 1978-79 to about 10%. </li></ul>CASE STUDY: Oil And The Economy
    30. 30. <ul><li>In year 1986 the members of OPEC broke out and this let the market of crude oil prices fell by about half, Unemployment fell and the inflation rate also reached to the lowest level. </li></ul>CASE STUDY: Oil And The Economy
    31. 31. CASE STUDY: Oil And The Economy
    32. 32. <ul><li>THANK YOU </li></ul>
    33. 34. Summary <ul><li>The U.S no longer needs to worry about oil prices. </li></ul><ul><li>Political troubles in middle east or greater co-operation among the members of OPEC always spend oil- prices higher. </li></ul>

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