Great Depression vs. Current Recession

Response
1. There are several speculated explanations to the beginning of the Great Depression. However, the generally credited cause was the failure or crash of the stock market in 1929. On Black Tuesday, October 29, 1929 is when the New York Stock Exchange crashed. Stock holders reported losing around $40 billion cumulatively (according to Martin Kelly’s article). Surprisingly, many nations response to the crash of the stock market also contributed greatly to the Great Depression. When the news of the stock market crash broke out, many countries increased their tariff rates (taxes on imported/exported goods), essentially stopping economic activity on a global level. As a result this spread the Great Depression around the world.

2. The current recession started because American banks were giving out loans to too many people that could not pay them back.

3. In the time of the Great Depression, governments would provide care to their citizens by developing social programs such as a primitive form of employment insurance, handing out food vouchers, and injecting money in their local economy to create jobs. Overall what they did in the 1930s were a great leap towards social reform, but it lacked the funding to really push them out of the Great Depression, only another World War would do that.

In the current recession, governments would inject stimulants into the economy hoping to increase employment and other things that will lead to future prosperity. I would consider the government response to the current recession a success, because there is nowhere near the amount of homeless people lining up on the streets waiting for government vouchers for food. So far my parents are still employed which is a good sign of it being somewhat successful.

4. The most notable difference to come out of the Great Depression for Canada was the newly introduced social reforms. Canada now developed a “cradle to grave” policy, as it took more responsibility for the wellbeing of its citizens through payment programs for unemployment and families. The government during the great depression also introduced the Bank of Canada, which was a way to monitor and regulate the supply of money through interest rates. The Great Depression also created many other federal parties, broadening the concepts of how to run Canada.

5. In the times of the Great Depression, the United States GDP decreased. 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 and as a result so did employment and product. All these factors contributed to the new all-time low GDP of $600 billion (according to charted resources from Wikipedia concerning the Great Depression). The United States lost over $400 billion during the Great Depression.

Oddly enough, the GDP of the United States did not drop during the 2007 recession. Based on the information provided from the World Bank website, The United States went into the recession with a GDP of $14.062 trillion dollars. At the end of the recession (2009), the recorded GDP of the US was $14.119 trillion. This outcome was completely opposite to my initial guess. A logical explanation would be the plan of approach towards the recession. They must’ve applied what they have learned from their past dealing with the Great Depression, which led them better prepared to encounter the recession of 2007.

6. I think the Great Depression undoubtedly created the larger impression on the world. It took one of history’s greatest periods of prosperity, the roaring twenties, and flipped it upside down. No longer were citizens enjoying the prospect of their own motor vehicles, the rising star known as Hollywood, or their new found leisure time. The new reality was the vast line ups for meager government relief, unemployed young men loitering around the city and the screams of agony on every street corner. Living through the 2007 recession in Canada, I saw little comparable to the scenes described from the 1930s.

Sources:

http://en.wikipedia.org/wiki/Stock_market_crash

http://www.english.illinois.edu/maps/depression/about.htm

http://www.actionplan.gc.ca/eng/feature.asp?featureId=18

http://www.yesnet.yk.ca/schools/projects/canadianhistory/depression/depression.html

http://americanhistory.about.com/od/greatdepression/tp/greatdepression.htm

Chapter 6

Article: http://business.financialpost.com/2011/04/04/oil-finds-new-floor-at-100/

Summary:
This article is about the current situation with the rising oil prices. More specifically, the article indicates the new floor price of a barrel of oil being at $100. The reasoning behind the new record high in crude oil prices is due to the high production costs and budgetary requirements in Saudi Arabia. In a previous point in time, the “fair price” for a barrel of oil for both producers and consumers was $75 a barrel. For the longest time, Saudi Arabia the leader of OPEC (Organization of the Petroleum Countries) has been looking for excuses and reasoning to increase the price of oil. One example would be the tampering with the supply of crude oil to manage prices. The crisis in Libya means that Saudi Arabia no longer needs to moderate prices to set up a long term demand for their oil amongst their consumers.

Connections:
The factor of aggregate demand in the article is price. After all, it is the price of oil that has changed, nothing else. The price of crude oil changed, because of the current riots in Libya and as well as the decisions made by Saudi Arabia, the leader of OPEC. As a result of the change in oil, the subsequent products and services that revolve around oil will also increase in price due to the new higher production costs. When consumers see the ridiculously high gas prices and other high prices, due to the increase of crude oil prices, their initial response is to spend less and save more for a rainy day or until there are discounts. The frugal nature to spend will result in an overall decrease in GDP.

Reflection:
Aggregate demand plays a proportionally large part in our every day spending routines. I feel that the factors really do reflect do decisions regarding when to purchase a product. When I have a surplus of disposable income I would usually be more liberal about purchasing goods for myself. However, during the summer when I lack disposable income, I tend to be smarter with my spending and budget accordingly. I personally believe that price is the strongest factor of aggregate demand. Too often are we turned away from products due to their triple digit retail price tag, looking for a cheaper mean of obtaining them or simply waiting for a sale to occur.