Great Recession Explained: Applying Aggregate Demand and Aggregate Supply Model

This assignment will be split into two major parts; the period between 2001 - 2007 and 2008 - present.

In this part you will use the aggregate demand and aggregate supply model to explain the effects of the government and the Fed policies in the period between 2001-2007 on the aggregate demand and overall economy.

Graph 1:

1. Draw the AD-SRAS-LRAS diagram for the U.S. economy starting in a long-run equilibrium.
2. Now describe the policies and events that were taking place in the early part of 2000s (at least 300 words)

• The monetary policy conducted by the Fed
• The repeal of the Glass-Steagall Act
• W. Bush and the drive for the home ownership (American Dream Downpayment Act of 2003 )
• Predatory lending

Two graphs that need to be included for explaining this and that you can easily create in FRED might be

• S&P/Case-Shiller 20-City Composite Home Price Index
• The Feds Fund Rate

1. What impact did this have on the AD?
2. As a result of all of this what has happened to US GDP, unemployment, and inflation?

Feel free to reuse your graphs from Assignment #1 to support your answers.

In this second part, you will use the model to explain the consequences of the housing market crash and the financial meltdown on the US economy.

Graph 2:

1. Draw the AD-SRAS-LRAS diagram for the U.S. economy starting in a long-run equilibrium.
2. Now describe what has happened in the US during 2007-2009 (at least 300 words).
3. What impact did this have on the AD?
4. As a result of all of this what has happened to US GDP, unemployment, and inflation?

Feel free to reuse your graphs from Assignment #1 to support your answers.

HOW TO SUBMIT YOUR ASSIGNMENT:

You can submit the assignment two ways.

One way is by preparing a traditional hard copy assignment that you will hand in class (or on blackboard for the online classes). In that case your assignment should include a title page with your name, title, and date! All the pages must be numbered!

A second way, and a much more exciting way for you to prepare this assignment is to create a website with all the text, graphs, and links that are relevant for analysis posted online. As you know, we are using an OER textbook in this class. This means that all the material that you are using is provided to you free of charge since the authors of the text decided to use an open license. In the spirit of giving back, this is your opportunity to shift your role from being a knowledge consumer to a knowledge creator. I challenge you to prepare and write an assignment that is not destined for the garbage bin after I grade it, but to create an assignment where your work adds value to the world.

In order to get started with your own site (google sites), please follow this link and watch an instructional screencast:

https://sites.google.com/view/food-and-wine-economics/home/assignments/google-drive-assignment?authuser=0

Once you prepare your site, send me a link and I will add it to my own website dealing with the topic of the minimum wage. The link to my own site, where I will showcase your work is:

https://sites.google.com/view/macroeconomicdata/home

Feel free to come and talk to me about your assignments and send me your preliminary versions for comments and review in order to improve your grade on this assignment. Feel free to discuss your assignments with other students, however all essays must be written individually by each student. No co-authoring allowed.

Due Date: On the day of the final exam in December, 2018.

Assignment is worth 5% of final grade!

Some useful terms needed to understand the financial meltdown

Some good movies that deal with the topic of the financial crisis 2007- 09