Macroeconomics: Economic Events and Policies from 2000 to 2010

This presentation provides an overview of the economic events and policies that occurred in the US from 2000 to 2010. It covers the tech bubble burst, housing crisis, and the fiscal and monetary policy actions taken to address these challenges. The presentation also discusses the impact of these events on economic growth, unemployment, inflation, and interest rates. References are provided for further reading.

Macroeconomics
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Introduction
• Series of economic events from 2000 to 2010
• Two significant events
• Tech bubble bust in 2001
• Housing crisis in 2008
• Recessions damage the economic growth.
• More severe impact than the great depression
• Fiscal and monetary policy actions

Economic Growth
• GDP: measures of economic activity
• Real GDP was 13.13 trillion dollars in 2000
• Growth rate was 4.1 percent
• Growth declined to 1 percent in 2001
• Because of tech bubble burst
• 9/11 attacks, war on terror, Iraq war
• Slow recovery Figure 1: Real GDP and
associated GDP growth rate from
2000 to 2010

Economic Growth
• Growth slightly declined to 3.5 percent in 2005
• Hit of Katrine and introduction of Bankruptcy act
• Growth further declined to 2.9 percent
• Tight monetary policy
• Increase in interest rate
• Economic downturn since the end of 2007
• Financial crisis that fully occurred in 2008

Dot Com Bubble
• Bursting of tech bubble from early 2000 to 2001
• Rapid spread of internet stocks
• Web failure
• Lofty promises were not materialized
• NASDAQ peaked at 5,048.62 on March 10, 2000
• Index began to fall since March 13, 2000
• NASDAQ lost nearly 9 percent in just six days
• Decline in growth, higher unemployment Figure 2: Dot com bubble

Housing Bubble
• Housing bubble was related to real estate market
• Housing price peaked in 2006
• Then started to decline
• Case-Shiller home price index recorded the largest drop
• Severe recession from 2007 to 2009
• Economy wide impact
• Decline in growth and investment
• Millions of people to lost their jobs Figure 3: Case Shiller Index
and housing market crisis

Unemployment
• Track economic health of a nation
• Associated with phases of economic growth
• In 2000, accounted rate was 3.9 percent
• Increase unemployment to 6.0 percent in 2002
• tech bubble bust, 9/11 terror attacks, war on terror
• Slow expansion and decline in unemployment
• Recession in 2008 and increased unemployment
• Rate was as high as 9.9 percent in 2009
Figure 4: Trend
unemployment rate in US
from 2000 to 2010

Inflation
• Economic expansion in 2000
• 3.4 percent inflation
• Economic trough in November 2001
• Inflation fell to 1.6 percent
• Rate was 4.1 percent in 2007
• Severe recession in 2008
• Inflation declined to 0.1 percent
• Economic recovery
• Rate stabled at 1.5 percent in 2010
Figure 5: Trend inflation rate in US
from 2000 to 2010

Interest rate fluctuation
• Interest rate: cost of borrowing
• Fell from 6.8% to 1.55% between 2000 and 2004
• Decline in inflation expectation
• Slow growth, ageing population, low investment
• Economic recovery stimulated real interest rate
• Rate was 5.25 percent in 2007
• Rate again declined 3.07 percent in 2008
• Lower inflation expectation
• Expansionary fiscal policy Figure 6: Real interest rate in
US over the decade

Foreign trade
• Export and import increased over time
• Trade deficit
• Import growth exceeded export growth
• Export grew on average by 14 percent
• Industrial supplies, consumer goods, capital goods
• Import grew on an average by 19 percent
• Industrial goods, capital goods, petroleum productsFigure 7: Export, Import and
Trade balance of US over the
decade

Government Policies
• Government plays a crucial role in the economy
• Two main policy instruments
• Fiscal policy and Monetary policy ‘
• Fiscal policy: Adjustment through government spending and tax
• Monetary Policy: Adjustment through money supply and interest
• Federal Open Market Committee (FOMC): acting committee that
control Fed’s open market transaction
• FOMC takes decision related to money supply and interest rate.

Fiscal Policy
• Active fiscal policy measures during recession in 2001
• Accounted half of the budgetary spending
• Bursting of tech bubble
• Attack on September 11 and ongoing war on terrorism
• Spending on the defense and homeland security
• Economic Growth and Tax Relief Reconciliation Act of 2001
• Introduced Job Creation and Worker Assistance Act (JCWAA) of 2002

Fiscal Policy
• Jobs and Growth Tax Relief Reconciliation Act of 2003
• Global financial crisis in 2008
• Stimulatory packages to rescue the economy
• Economic Stimulus Act of 2008
• Stimulatory packages valued $152 billion and $600 tax rebates
• American Recovery and Reinvestment Act of 2009

Monetary Policy
• Economic expansion in 2000
• Consecutive increase in interest rate
• Dot-com bubble in the late 2000 triggered a recession
• Federal Open Market Committee lowered the overnight fund rate
• Rate declined from 6.5 percent in 2000 to 1.75 percent in December
2001
• Rate further lowered to 1 percent in June 2003
• Negative real rate from November 2002 to August 2005

Monetary Policy
• Housing market in United State fueled from 2001 to 2007
• Housing price peaked in early 2006
• Dropped suddenly since late 2006 and 2007
• Great recession
• Government intervention in the national financial system
• Emergency Economic Stabilization Act and Troubled Asset Relief Program
or TARP
• The Federal Reserve, Securities and Exchange Commission and Treasury
took several measures

Conclusion
• 2000 – 2010 was an important decade in US history
• Dot com bubble of 2001
• Housing crisis in 2008
• NASDAQ composite stock market index crashed in 2001
• Housing bubble burst in 2008
• Downturn in economic activity, increase in unemployment and an
overall contraction of the economy.
• Monetary and Fiscal resilience packages to recover crisis.

References
• Antonakakis, N., André, C., & Gupta, R. (2016). Dynamic spillovers in the United States: stock
market, housing, uncertainty, and the macroeconomy. Southern Economic Journal, 83(2), 609-624.
• Baily, M. N., & Bosworth, B. P. (2014). US manufacturing: Understanding its past and its potential
future. Journal of Economic Perspectives, 28(1), 3-26.
• Basco, S. (2014). Globalization and financial development: A model of the Dot-Com and the Housing
Bubbles. Journal of International Economics, 92(1), 78-94.
• bea.gov. (2018). Gross Domestic Product | U.S. Bureau of Economic Analysis (BEA). Retrieved from
https://www.bea.gov/data/gdp/gross-domestic-product
• Blecker, R. A. (2016). The US economy since the crisis: slow recovery and secular
stagnation. European Journal of Economics and Economic Policies: Intervention, 13(2), 203-214.
• bls.gov. (2018). CPI Home : U.S. Bureau of Labor Statistics. Retrieved from https://www.bls.gov/cpi/
• bls.gov. (2019). Employment Situation. Retrieved from
https://www.bls.gov/news.release/empsit.toc.htm
• census.gov. (2018). Foreign Trade - U.S. Trade with World, Not Seasonally Adjusted. Retrieved from
https://www.census.gov/foreign-trade/balance/c0015.html

References
• Cukierman, A. (2013). Monetary policy and institutions before, during, and after the global financial
crisis. Journal of Financial Stability, 9(3), 373-384.
• data.worldbank.org. (2018). Real interest rate (%) | Data. Retrieved from
https://data.worldbank.org/indicator/FR.INR.RINR?locations=US&view=chart
• Decker, R., Haltiwanger, J., Jarmin, R., & Miranda, J. (2014). The role of entrepreneurship in US job
creation and economic dynamism. Journal of Economic Perspectives, 28(3), 3-24.
• Fischer, S. (2019). Stanley Fischer: The low level of global real interest rates. Retrieved from
https://www.bis.org/review/r170807a.htm
• Hall, R. E. (2015). Quantifying the lasting harm to the US economy from the financial crisis. NBER
Macroeconomics Annual, 29(1), 71-128.
• imf.org. (2019). U.S. Fiscal Policies and Priorities for Long-Run Sustainability -- IMF Occasional
Paper No. 227. Retrieved from https://www.imf.org/external/pubs/nft/op/227/
• Kose, A., Lakatos, C., Ohnsorge, F. L., & Stocker, M. (2017). The global role of the US economy:
Linkages, policies and spillovers. The World Bank.

References
• Mohun, S. (2014). Unproductive labor in the US economy 1964-2010. Review of Radical Political
Economics, 46(3), 355-379.
• Nakamura, E., & Steinsson, J. (2014). Fiscal stimulus in a monetary union: Evidence from US
regions. American Economic Review, 104(3), 753-92.
• Nguyen, T. D., Suardi, S., & Chua, C. L. (2017). The behavior of US public debt and deficits during
the global financial crisis. Contemporary Economic Policy, 35(1), 201-215.
• Reifschneider, D., Wascher, W., & Wilcox, D. (2015). Aggregate supply in the United States: recent
developments and implications for the conduct of monetary policy. IMF Economic Review, 63(1), 71-
109.
• Stokes, D. (2014). Achilles’ deal: Dollar decline and US grand strategy after the crisis. Review of
International Political Economy, 21(5), 1071-1094.
• ustr.gov. (2019). U.S. Trade in 2000. Retrieved from
https://ustr.gov/archive/assets/Document_Library/Reports_Publications/
2001/2001_Trade_Policy_Agenda/asset_upload_file485_6497.pdf
• Wolfson, M. H. (2017). Financial crises: Understanding the postwar US experience. Routledge.
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