UW-Madison ECON 102 - The Great Recession, Interest Rates, Monetary Policy (7 pages)

Previewing pages 1, 2 of 7 page document View the full content.
View Full Document

The Great Recession, Interest Rates, Monetary Policy



Previewing pages 1, 2 of actual document.

View the full content.
View Full Document
View Full Document

The Great Recession, Interest Rates, Monetary Policy

254 views

The Great Recession, Interest Rates, Monetary Policy


Lecture number:
20
Pages:
7
Type:
Lecture Note
School:
University of Wisconsin, Madison
Course:
Econ 102 - Principles of Macroeconomics
Edition:
1
Documents in this Packet
Unformatted text preview:

Econ 102 1st Edition Lecture 20 Outline of Last Lecture I Chapter 14 Outline of Current Lecture I General Info II The Great Recession III 14 4 Interest Rates and How they Change Investment Output GDP IV 14 5 Monetary Policy Challenges for the Fed V Film Glossary Current Lecture I General Info a Use Exam Content Folder to study for the final b Gwen will have 2x the office hours returning from thanksgiving break II The Great Recession a Information on Great Recession in Chapter 13 14 b The applications pull all those things together c Traditional Open market i increased bank reserves ii pushing on the string problem iii thus Federal Reserve dropped the Reserve requirement These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 1 Didn t change anything because Banks were already saving more than they needed to d So they lowered the discount rate i we ll lend to you with no interest ii still banks didn t want to lend 1 might not be able to pay back the loan 2 didn t want to take any chances iii People are nervous about the short term but trusting of the long term credit markets 1 people aren t as nervous about the future 2 application in chapter 14 3 Reserves rescue the banks 4 just giving them money a Because they are the infrastructure of the economy iv for 2 days the banks froze and made NO LOANS 1 no capital deepening 2 no control of money supply III 14 4 Interest Rates and How they Change Investment Output GDP a Figure 14 5 i If you can get investment to change you can get aggregate demand to change ii This investment is short term stuff 1 ex paying debt over night 2 therefore no affect on capital deepening iii Aggregate Demand Curve shifts right 1 increases GDP 2 very Keynesian no long run b Study Page i Open market bond purchases increase in money supply 1 the checks they add to bank adds to the bank reserves allows banks to play with the money loans 2 Fall in Interest rates 3 Rise in investment spending 4 Increase in GDP ii Open market bond sale 1 decrease in money supply 2 rise in interest rates 3 fall in investment spending 4 Decrease in GDP a worried things are moving too quickly so slow it down but country as a whole is blooming iii Know how to compare and contrast monetary and fiscal policy c Interest Rates and Exchange Rates i The exchange rate is the cost of the domestic currency in terms of units of foreign currency ii exchange rate will rise iii with an increase in foreign demand for US goods and services 1 two reasons foreigners want US dollars Euros dollars exchanging a goods and services b financial assets focus for exam d Monetary Policy and International Trade i exchange rate 1 rate at which currencies trade for one another in the market ii currency depreciation 1 a decrease in the value of a currency 2 lousy rate of return 3 if this does work it doesn t distort a increases demand for the dollar and net exports b increases GDP iii currency appreciation 1 an increase in the value of a currency 2 indirectly hurts our exports 3 distorts in the long run a unintended consequence is measured by the interest rate effects IV 14 5 Monetary Policy Challenges for the Fed a Lags in Monetary Policy i Inside lags time it takes for policymakers to recognize and implement policy changes 1 Janet Yellen is going to make a change she s not wishy washy she is just letting the markets know 2 interest rates are going to go up 3 Policy Makers aren t worried about being reelected like a president so they try to let people know what they plan to do but its difficult ii Outside Lags V Film Glossary a Bring with you for video next week it has great terminology i Investment Bank 1 not a normal bank 2 doesn t have checking and savings account etc 3 provide VERY large loans for VERY large purchases 4 Money managers rather than bankers a bunch of wealthy people to buy a hockey team b a merger between two airlines c help manage pension systems 5 Few firms that are extremely powerful and large a too big to fail because every country in the world needs these guys to survive political power b concern that the deregulation will create monsters i strongly influencing who gets elected ii extremely powerful and important to the economy ii Investment Grade 1 3 largest rating agencies 2 Moody S P and Fitch a how likely are these guys to repay b Giving you information 3 Important legal aspect to what they do a Pensions i legally only allowed to invest pension in A category ii thus these agencies determine where the pensions can be invested because they give out the grade iii Security 1 pull together a lot of types of loans diversify 2 desensitizes the risks 3 making lender more stable iv Prime 1 great credit rating 2 always pay off debts have a good job v Sub prime 1 dont usually make payment on time 2 declare bankruptcy 3 bad credit rating vi Bubble 1 EX Iron man action figures are collectibles limited supply will be worth a bunch in the future we all buy them a prices will therefore go up b people think they re right thus more buy c Then someone realizes this is silly or mass production occurs i BUBBLE POPS ii not caused by increased productivity iii caused by the people


View Full Document

Access the best Study Guides, Lecture Notes and Practice Exams

Loading Unlocking...
Login

Join to view The Great Recession, Interest Rates, Monetary Policy and access 3M+ class-specific study document.

or
We will never post anything without your permission.
Don't have an account?
Sign Up

Join to view The Great Recession, Interest Rates, Monetary Policy and access 3M+ class-specific study document.

or

By creating an account you agree to our Privacy Policy and Terms Of Use

Already a member?