Econ 102 1st Edition Lecture 23Outline of Last Lecture I. DerivativesII. Making a LoanIII.Risk in the Housing MarketIV. SecuritizationV. The Inside Job Part III: The CrisisVI. How we got the Financial CrisisOutline of Current LectureI. Exam 3II. Chapter 15Current LectureI. Exam 3 (Final)a. Equal weight as other two midtermsb. Use old exams! i. she will most likely recycle some multiple questionsii. Look at short answers and grade yourself using the an-swer key!c. No opinion questions like the first twoII.Chapter 15a. A lot of review from Chapter 9i. Aggregate Demand and Aggregate Supply ModelThese 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.ii. Monday we’ll pull together all the graphsb. The Modern Neo-Keynesian Model: From the Short Run to the Long Runi. How long does it take to get back to equilibrium?ii. What if we do nothing and are Neo-Keynesian?iii. Opportunity cost of doing something?c. 15.1 linking the Short Run and the Long Runi. Short run: the period of time in which prices do not change or do not change very muchii. Long run: the period of time in which prices have fully ad-justed to any economic change (*classical)d. 15.2 How wage and price changes move the economy naturally back to full employmenti. Aggregate demandii. Aggregate Supply1. short run and long run2. Takes a long time for people to agree to a wage cut, takes some time to adjustiii. How the economy returns from a boom1. opposite of before2. If economy is operating above full employment, prices will rise, shifting the SR aggregate supply curve upward.3. This will return output to its full employment level4. Problems with using Stabilization Policy: Neo-Classi-cala. Neo-classical say its not gentler to use, you're paying for it in the LR with lower output, lowerreal wages, taxes burdens on the next genera-tion5. Problems with using Stabilization Policy: Neo-Keyne-siana. Neo-keynesian worried about the times it takes, inside and outside lags, short run prob-lemsb. also worry about overusing monetary policy i. (works through interest rates- gets banks to lend more, and interest rates can only go so low, bound at 0.. (no inter-est rate less than 0 you’d have to pay back less than you were loaned- no one is going to agree to that))ii. Politicians might just use it to get re-elected, 6. Liquidity Trapa. a situation in which nominal interest rates are so low, they can no longer fallb. have run out of monetary policy 7. Political Business Cyclesa. the effects on the economy of using monetary or fiscal policy to stimulate the economy beforean election to improve reelection
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