UW-Madison ECON 102 - Econ 102 Review (5 pages)

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Econ 102 Review



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Econ 102 Review

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Overview of Professor Eudey's Office Hour Lecture for the Final Exam


Pages:
5
School:
University of Wisconsin, Madison
Course:
Econ 102 - Principles of Macroeconomics

Unformatted text preview:

What the FED did during the Great Recession 1 Direct lending to housing markets They did so bypassed the banks to avoid pushing on a string or bunching up of reserves The federal funds rate was 0 at the time so the banks only lent to each other Our interest rate stayed high The FED lent to houses to lower that interest rate so investment GDP could increase 2 They paid interest on reserves They did so to avoid pushing on a string Kept the banks solvent and did not hurt tax payers 3 They purchased long term debt to invest in the capital stock They also purchased mortgage backed securities and lowered the discount rate Ways the FED could increase the money supply Open market purchases Decrease the federal funds rate Decrease the discount rate Decrease the required reserve ratio Must watch out for a liquidity trap interest rates too low they can t go any lower We may be in one now Seen by the excess reserves a federal funds rate of 0 and the cost of borrowing barely covering inflation PRO S AND CON S TO MONETARY AND FISCAL POLICY Monetary Policy Long Run leads to inflation no change in output gdp labor Only higher P s Short Run effective in changing interest and investment rates Fiscal Policy Long Run Crowding out of investment due to increase in interest rates Crowding out of NX and C as the government spends our dollar appreciates and C and NX fall Short Run No room for it Doesn t work because of lags M1 Currency 46 Checking Deposits Travelers Checks Demand Deposits m2 Savings Deposits 64 M1 Small Time Deposits Money Market Funds Two things the FED does for the Banks Holds Reserves Oversee s check clearing List two factors that were major contributors to the onset of the Great Recession Bank Deregulation Formation of securities that linked housing markets globally Policy that encouraged homeownership Burst of the Housing Bubble Equation for reserve ration Required Reserves Any Excess Reserves Deposits EX 15 000 10 000 50 000 50 Reserve Ratio Notes from office hours



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