economic analyst richard gill explains why.ankers wouldn't want to give up a fractional-reserve system is pretty obvious. they make money by lending. is this somehow sinful? hardly. if they didn't make money on loans they'd charge us hefty fees on deposits. most of us would regard this as even more sinful. the knickerbocker case was a bit alarming but most of the time fractional-reserve banking works well. here's how a commercial bank's balance sheet might look. we have two columns here assets and liabilities. assets are what the bank owns. liabilities are what it owes. in this stripped-down case the bank's assets consist of money we have deposited and its loans to businesses. this banks owns a claim of $80 million against industrial firms who have borrowed money and will pay interest to the bank. against these assets we have what the bank owes to its depositors, what we call demand deposits, since they are payable whenever we write a check on them. what fractional-reserve banking means isn't that assets exceed liabilities-- yo

economic analyst richard gill explains.ome say an economist, like a cynic, knows the price of everything and the value of nothing. economists, when they measure gnp and its growth over time, tend to concentrate on goods and services that had market prices, numbers that can be added, subtracted, and multiplied. the more intangible benefits and costs of growth, however much they affect our economic welfare, are much harder to assess. it isn't just an economist's problem. we all have different evaluations of the desirablity or undesirability of economic growth. some people genuinely like the buzz and bustle of a growing economy. others prefer stability and tranquility. who is to say which preference is correct? still, these gnp numbers tell a remarkable story. the curve of real u.s. gnp has fluctuated, but basically, it has ascended dramatically over the past century. the total production of goods and services rose 20 times or more during this period. what has this meant to us? more pollution, noise, congestion, anxiety. all t

we asked richard gill how those stabilizers work.1954, when real gnp began to fall, federal tax revenues also began to fall simply because there was less taxable income. this meant more money for consumers. private spending did not have to fall as much as one might have expected. in terms of our diagram, this private spending curve, instead of going down, was flatter like this. instead of spiraling into a great depression, private spending was maintained at a relatively high level. the fall in national income was cushioned. if these stabilizers are so wonderful and worked so nicely in 14, why didn't they stop the great depression of the 1930s? because government was playing a much larger economic role than it had been 20 years earlier. this was what keynesians of the time were advocating. i, john fitzgerald kennedy do solemnly swear... that you will faithfully execute the office of president. that i will faithfullexecute... the bright promise of that day blinded many. john kennedy had managed only a razor-thin margin of victory. he w

richard gill offers his commentary. wage and price controls were adoed because the keynesian remedy for inflation-- cutting backaggregate mand-- suddenly seemed inadequate to our new situation. cutta keynesian-style inflation, we recall, looks like this. suddenly seemed inadequate to our new situation. demand is too high, so we cut back, say, by raising taxes. we lower prices without having real effect on gnp or employment. suppose our aggregate supply curve is different from the keynesian. suppose the whole supply curve looks like th. suddenly, we're in a new world. prices are too high up here, so we cut back aggregate demand to here. prices do fall, but-- and this is a huge but-- so, also, does our gnp. to lower inflation, we plunged the economy into a recession. we traded off some of our employment to bring inflation down. these diagrams present an oversimplified picture of what was going on at t time. generally, we can say that by the early 1970s, prices had a ndency to rise bere fulemployment was ached. inflationar

economist richard gill has an anasis.understand this question, we neesome sense of how t moneyupply affects the economy's general workings and how the fedcaaffect the. this diagram suggests the general nature of the answers theseuestions. theotically, in a depression situation, the fed should increase reserves available to the commercial banking system-- provide more reserves, as stated in the first box. the hope is that banks will lend more credito businesses, thereby increasing the quantity of money in the economy. more money, in turn, should lead to more spending by businesses who have borrowed to invest in new machinery and factories, possibly also by consumers like ourselves. more spending, in turn, shouldead to higher gnp and more jobs. it may also lead to higher prices, though that didn't seem a problem then. 1930s prices were generally falling. when the fed tried to stem the gold outflow by raising the discount rate in 1931, it was doing the opposite of what this analysis suggests. it made it more difficult for co

we put that question to economic analyst richard gill.the old days, you used to be able to divide economists into two groups, those who worried about stagnation and those who worried about inflation. what the food and energy shocks of the early 1970s proved was that both were right. economics can be a bit unsettling that way. everybody's worries can come true. technically speaking what was happening was a shift of focus from the demand side of the economy to the supply side. here we have aggregate supply and demand curves for the economy as a whole. we measure total output, gnp along the horizontal axis, and the price level along the vertical axis. now, roughly speaking, we can think of stagnation as occurring whenever the economy moves towards lower gnp. that is, to the left here, along the horizontal axis. but by contrast, inflation occurs when we move upwards here along the vertical or price, axis. now, in the days before the supply shocks, people tended to focus on changes on the demand side only. if demand went up to here, for exampl

with the help of richard gill, we'll explore that question on this edition of economics usa.'m david schoumacher. boom or bust? why is the economy so unstable? factories sit idle or stagger along because nobody has any money to spend. workers sit home without any money to spend hoping the economy gets better so they can work again. it's a pattern that repeats itself over and over again. few people worried about trying to explain economic fluctuations during the 19th century. americans were too busy building railroads expanding commerce overseas, or creating new industry. the years after the civil war saw a continuing expansion of the american economy. although this prosperity was interrupted by periodic slumps few people seemed to worry. didn't the economy always bounce back? on the eve of world war i, economists had no theory to explain recurring downturns. why not? we asked some economic historians. the bubbles, the panics, the convulsions, revulsions, crises, gluts, they were noticed back in the 1810s, but the idea of a cycle-- good times and then bad times-- took a long t

we'll investigate that with the help of economics analyst richard gill on economics usa.d times. we've seen a lot of them over the years. 1932 and the years that followed were different. the hoover administration tried to popularize the word depression. they thought it a milder word that would soothe the american public. by 1932, hope was about gone. the depression was more than an economic problem. it was human calamity. millions went hungry, some to starvation. proud people begged on street corners asking for pennies to feed their children, for jobs that no longer existed. the economic devastation seemed total. things couldn't possibly get worse, and yet they did. over 4,000 banks failed. the value of stocks dropped from $89 billion to $15 billion. national income dropped. investment, savings, consumption-- everything plummeted. 14 million people, 1/4 of the work force were without jobs. the agricultural economy, a refuge in earlier depressions, suffered during the 1920s then collapsed in the 1930s. nothing seemed to halt the downward spiral. how did people respond? eri

gill simone. the other semisees richard gas gay taking on the french player. >> australia aiming to claim their second win of the rugby championship series in a few hours. the wallabies play south africa. the unbeaten new zealand side, argentina ahead of a clash against the pumas. argentina yet to win a match since joining the competition last year. >> tom lewis is the second-round leader at the links championship, shooting 65 at st andrew's. the event is being played over three courses, lewis plays another round. peter dhoust missed out on shooting the lowest score. >> the new nba season a month away. anticipation is mounting over the returns of the game's biggest name. la lakers star kobe bryant is one. he's been on a promotional tour in dubai, recovering from a torn achilles champion. he injured himself before the playoffs in april, but is not 100% sure whether he'll be ready for the start of new season. >> it's about cutting the recovery time from monday, tough workout to be able to do the same workout tuesday and wednesday, so forth and so on. it's about shortening the recovery time. it should be