TheGreatDepression

Two possible analyses of the Great Depression are (a) an autonomous fall in investment, shifting a steep IS along a shallow LM, and (b) an autonomous fall in the money stock, shifting a steep LM along a shallow IS.

(1) Can either explanation be made to fit the facts given by Mankiw (Table 11.2)?

(2) What important economic processes do these analyses omit? Show, wherever possible, how your arguments can be displayed in IS/LM.

(3) Use the same IS-LM-AD-AS analysis to compare the great depression with the current global economic crises caused by Covid 19. On what ways they are similar? On what ways they are different? Explain your answers.

TABLE 12-1 What Happened During the Great Depression? Year Unemployment Rate (0) Real GNP (2) Consumption (2) Investment (2) Government Purchases (2) Nominal Interest Rate (3) Money Supply (4) Price Level (5) Inflation (6) Real Money Balances 1020 32 203.0 130,8 40.4 22.0 5.9 28.8 50.8 52.0 1930 8.0 183.5 130.4 27.4 24.3 3.8 25.8 4913 2.8 52.3 1931 10.3 100.5 126.1 18.8 25.4 2.0 241 44.8 - 10.1 54.5 1932 24.1 144.2 114.8 4.7 24.2 2.7 21.1 40.2 -9.3 52.5 1933 25.2 141.5 112.8 5.3 23.3 1.7 190 303 -2.2 5017 1934 220 154.3 118.1 9.4 28.0 1.0 21.9 42.2 74 61.8 1935 20.3 109.5 125.5 18.0 27.0 0.8 25.9 426 0.0 60.8 1938 17.0 1932 138.4 24.0 31.8 0.8 29 42.7 012 82.0 1937 14.3 203.2 143.1 20.0 30.8 09 30.0 44,5 42 89.5 1938 19.1 192.0 140.2 17.0 33.0 0.8 30,5 43.9 113 189.5 1930 17.2 2094 148.2 24.7 35.2 0.0 34.2 43.2 1.0 70.1 14.0 16 1940 227.2 156.7 33.0 38.4 0.0 30,7 43.9 00:3 Data from: Historical Statistics of the United States, Colonial Times to 1970 Parts and / Washington DCI U.S. Department of Commerce. Bureau of Census, 1975) Note: The unemployment rate is series D9. (2) Real GNP, consumption, Investment and government purchases are series FC F48 F52, and F66, and are measured in billions of 1958 dollars (3) The Interest rate is the prime commercial Paper rate 4-6 months series X445. (4) The money supply is series X414. currency plus demand deposits measured in billions of dollars. The price level is the GNP deflator (1958= 100). series E1 by The Inflation rate is the percentage change in the price level senes. Real money balances calculated by dividing the money supply by the price level and multiplying by 100 brein Billions of 1958 dollars TABLE 12-1 What Happened During the Great Depression? Year Unemployment Rate (0) Real GNP (2) Consumption (2) Investment (2) Government Purchases (2) Nominal Interest Rate (3) Money Supply (4) Price Level (5) Inflation (6) Real Money Balances 1020 32 203.0 130,8 40.4 22.0 5.9 28.8 50.8 52.0 1930 8.0 183.5 130.4 27.4 24.3 3.8 25.8 4913 2.8 52.3 1931 10.3 100.5 126.1 18.8 25.4 2.0 241 44.8 - 10.1 54.5 1932 24.1 144.2 114.8 4.7 24.2 2.7 21.1 40.2 -9.3 52.5 1933 25.2 141.5 112.8 5.3 23.3 1.7 190 303 -2.2 5017 1934 220 154.3 118.1 9.4 28.0 1.0 21.9 42.2 74 61.8 1935 20.3 109.5 125.5 18.0 27.0 0.8 25.9 426 0.0 60.8 1938 17.0 1932 138.4 24.0 31.8 0.8 29 42.7 012 82.0 1937 14.3 203.2 143.1 20.0 30.8 09 30.0 44,5 42 89.5 1938 19.1 192.0 140.2 17.0 33.0 0.8 30,5 43.9 113 189.5 1930 17.2 2094 148.2 24.7 35.2 0.0 34.2 43.2 1.0 70.1 14.0 16 1940 227.2 156.7 33.0 38.4 0.0 30,7 43.9 00:3 Data from: Historical Statistics of the United States, Colonial Times to 1970 Parts and / Washington DCI U.S. Department of Commerce. Bureau of Census, 1975) Note: The unemployment rate is series D9. (2) Real GNP, consumption, Investment and government purchases are series FC F48 F52, and F66, and are measured in billions of 1958 dollars (3) The Interest rate is the prime commercial Paper rate 4-6 months series X445. (4) The money supply is series X414. currency plus demand deposits measured in billions of dollars. The price level is the GNP deflator (1958= 100). series E1 by The Inflation rate is the percentage change in the price level senes. Real money balances calculated by dividing the money supply by the price level and multiplying by 100 brein Billions of 1958 dollars