UNC-Chapel Hill ECON 101 - Supply-Side Equilibrium: Fiscal Policy; Monetary Policy and the Great Recession (3 pages)

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Supply-Side Equilibrium: Fiscal Policy; Monetary Policy and the Great Recession



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Supply-Side Equilibrium: Fiscal Policy; Monetary Policy and the Great Recession

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Supply-Side Equilibrium: Fiscal Policy; Monetary Policy and the Great Recession (combination of both lecture 17 and 18)


Lecture number:
15
Pages:
3
Type:
Lecture Note
School:
University of North Carolina at Chapel Hill
Course:
Econ 101 - Introduction to Economics
Edition:
1
Unformatted text preview:

Econ 101 1st Edition Lecture 15 Supply Side Equilibrium Fiscal Policy Monetary Policy and the Great Recession Chapter 28 Fiscal Policy is the government s plan for spending and taxation It is designed to steer aggregate demand in some desired direction Automatic Stabilizer is a feature of the economy that reduces its sensitivity to shocks such as sharp increases or decreases in spending Are there more examples of stabilizers One example of an automatic stabilizer would be Unemployment Insurance provided by the government While it is bad when someone loses their job having this Insurance limits the blow and allows for the unemployed person to not lose all methods of spending Chapter 30 Monetary Policy refers to actions that the Federal Reserve System takes to change interest rates and the money supply It is aimed at affecting the economy Central Bank is a bank for banks The United States central bank is the Federal Reserve System Central bank independence refers to the central bank s ability to make decisions without political interference Open market operations refer to the Fed s purchases or sales of government securities normally Treasury bills through transactions in the open market Buy Bonds think big bucks moves the Money Supply to the right Sell Bonds think small bucks moves the Money Supply to the left Federal Funds Rate is the interest rates that banks pay and receive when they borrow reserves from one another Bank to Bank Discount Rate is the interest rate the Fed charges on loans that it makes to banks Fed to Bank 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 Risk of Default on any loan or security is the risk that the borrower may not pay in full or on time Market interest rates generally include a risk premium spread over Treasuries to compensate the lender for the probability of loss if the borrower fails to repay the loan in full or on time Unconventional monetary policy is a generic term referring to unusual forms or volumes of central bank lending and to unusual types of open market operations This would include the fed buying SECURITIES rather than treasury bills Quantitative Easing refers to open market purchases of assets other than Treasury bills Chapter 31 Mortgage is a particular type of loan used to buy a house The house normally serves as the collateral for the mortgage Bubble is an increase in the price of an asset or assets that goes far beyond what can be justified by improving fundamentals such as dividends and earnings for shares of stock or incomes and interest rates for houses Interest Rate Spread is the difference between an interest rate on a risky asset and the corresponding interest rate on a risk free Treasury security Subprime a mortgage is classified as subprime if the borrower fails to meet the traditional credit standards of prime borrowers Leverage when an asset is bought with leverage the buyer uses borrowed money to supplement his or her own funds Leverage is typically measured by the ratio of assets to equity For example if the buyer commits 100 000 of his or her own funds and borrows 900 000 to purchase a 1 million asset we say that leverage is 10 to 1 1 million divided by 100 000 A company is insolvent when the value of its liability exceeds the value of its assets that is when its net worth is negative Collateral is the asset or assets that a borrower pledges in order to guarantee repayment of a loan If the borrower fails to pay the collateral becomes the property of the lender Foreclosure is the legal process through which a mortgage lender obtains control of the property after the mortgage goes into default 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 Econ 101 1st Edition Securitized loans are securitized that is transformed into marketable securitieswhen they are packaged together into a bond like instrument that can be sold to investors potentially all over the world Mortgage backed security MBS is a type of bond whose interest payments and principal repayments derive from the monthly mortgage payments of many households Troubled Assets Relief Program TARP enabled the U S Treasury to purchase assets and equity from banks and other financial institutions as a means of strengthening the financial sector Recapitalized a bank is said to be recapitalized when some investor private or government provides new equity capital in return for partial ownership 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


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