Keynesian Golden Age Essay

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Economic Changes The era of the Keynesian Golden Age is marked by the stable economic growth from 1946 to 1973. After World War II, many people expected the economy to witness periods of high inflation but this did not occur until after 1970. Keynes’s, “General Theory”, is a demand side approach to under consumption. He advocated that government spending could be used to stimulate spending. His theory of countercyclical fiscal and monetary policy suggests that an economy should run a deficit during a recession by increasing the money supply and run a surplus and contract the money supply during periods of inflation (Notes). There was a changing economy and economics from 1970 to 2000 that saw inflation, oil, money, trade and unemployment issues. This era would mark the end of Keynesian economics and the golden age …show more content…

Housing values across the nation grew more than fifty percent and many new homes were being built. Interest rates can be damaging to housing prices because, generally, they are highly leveraged on debt. For example, a 20% down payment on a $100,000 home leaves $80,000 of leveraged debt. Forty percent of all homes purchases were for investment by 2005, with the intention to resell only after a few years. The economy was booming. Home ownership was up to 69 percent (Morris). By 2003, lenders were running out of borrowers and to keep the fire burning they would make loans to high risk borrowers. For example, subprime lending jumped from $145 billion in 2001 to $625 billion in 2005. Lots of these loans were done without any money down. Monthly rates would increase higher than many of the borrowers’ monthly income. The fact that housing prices had never fallen distracted many from reality. In 2007, the housing boom was over. In October $20 billion in losses in the financial sector, $11 billion of which were primarily subprime collateralized debt obligations

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