Econ 101 1st EditionLecture 16Supply-Side Equilibrium: Fiscal Policy; Monetary Policy and the Great RecessionChapter 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 stabilizerwould 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 rightSell Bonds (think small bucks) = moves the Money Supply to the leftFederal 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)Risk of Default: on any loan or security is the risk that the borrower may not pay in full or on time.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.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 canbe justified by improving fundamentals, such as dividends and earnings for shares ofstock 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.Securitized: loans are securitized- that is transformed into marketable securities- when they are packaged together into a bond-like instrument that can be sold to investors, potentially all over the world.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 EditionMortgage-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