How Does The Recent Stock Market Boom And Recession Effect Microeconomics

What is the New Economy? In the simplest term, the New Economy is a term to describe the evolution of high technology-based economy in the United States . With the new developments in the Internet, telecommunications and computer sectors, this evolution as believed by many to have created a state of permanent and steady growth, low unemployment and immunity to boom-and-bust macroeconomic cycles. During the four years of 995-99, U. S. productivity growth experienced a strong revival and achieved growth rates exceeding that of the golden age' of 1913-72.

Many observers have asserted the New Economy, its Internet and the accompanying acceleration of technical change in computers and telecommunications, to be an Industrial Revolution equal in importance, or even more important, than the Second Industrial Revolution of 1860-1900 which gave us electricity, motor and air transport, motion pictures, radio, indoor plumbing, and made the golden age of productivity growth possible. However, in March and April of 2000, the NASDAQ crashed and fell from the level of nearly 5,000 to 2,000.

During the crash, we have seen that a lot of high-tech and start-up companies went bankrupt. The stock market went through a correction, and a long-running economic debate is talking about the New Economy. Does the New Economy exist? It probably does, however, more evidences many be needed for economists and policymakers to acknowledge (Visco, 2000). The objective of this paper is to try to come to the answer whether the New Economy exists. This paper will discuss the beginning of the New Economy with the advance of new technologies, the staggering growth in U.S economy, the disequilibria in the New Economy, and conclusion regarding the existence of New Economy.

New Economy

In the 1990s, the U.S economy has been growing at a surprising pace for almost a decade, and exceeding all expectation (Visco, 2000). The catalyst for the expansion of U.S economy can be contributed to Ronald Reagan's election victory. President Reagan and his trickle down economics or "Reaganomics" brought laissez faire to a maximum point. He repealed or lay off enforcement of antitrust and business law (Reaganomics). The stagnant equity markets began to take off and the greatest bull market continued 15 years later. Coupled with major tax cuts and financial market innovation, an era of technological revolution appeared.

The era during 1990s witnessed innovations as we have never seen before. What we call New Economy is truly the dawn of a new age, a Silicon Age, and closely tied to the effects of technical progress on economic growth (Visco). In 2001, an Organisation for Economic Cooperation and Development ministerial report concluded that information and communications technology were important technologies that contributed a boosted productivity and growth in economies for years (Pilat, 2003). Over the next decade or so, the New Economy, so far propelled mainly by information technology may turn out to be only the initial stage of a much broader flowering of technological, business, and financial creativity.

Between 1995 ...