DOC PREVIEW
IUPUI ECON 202 - Exam 2 Study Guide

This preview shows page 1-2 out of 5 pages.

Save
View full document
View full document
Premium Document
Do you want full access? Go Premium and unlock all 5 pages.
Access to all documents
Download any document
Ad free experience
View full document
Premium Document
Do you want full access? Go Premium and unlock all 5 pages.
Access to all documents
Download any document
Ad free experience
Premium Document
Do you want full access? Go Premium and unlock all 5 pages.
Access to all documents
Download any document
Ad free experience

Unformatted text preview:

ECON 202 1st EditionExam # 2 Study Guide Chapter: 9Question and Answer pages in chapters’ is a good reviewChapter 9 (Lectures from 2/18 to 2/23)Loanable Funds Market: market where savers supply funds for loans to borrowers Includes places like stock exchanges, investment banks, mutual fund firms, and commercial banksSuppliersthose who save (include households and foreign entities) - The suppliers are savers.Demander’s borrowers, of loanable funds include firms and governments - The demanders (or consumers) are borrowers. Every dollar requires a dollar saved. Chain of Borrowing- GDP (output, production) requires investment- Investment requires borrowing- Borrowing requires savingo The Loanable Funds Market makes this process proficient Interest rate: price of loanable funds 2 different views of interest rates: the view of the saver and the view of the borrowerthe price of loanable funds-savers: the reward for savingThese 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.-borrowers: the cost of borrowingLoanable funds law of supply: The quantity of savings rises when the interest rate rises. The interest rate is a reward for saving. A firm should borrow when: Expected return > interest rate on loan Fisher Equation: Real interest rate= nominal interest rate – inflation rate Nominal interest rate= real interest rate + inflation rate Supply Curve Change- Movement along supply curve: caused by change in interest rate- Shift in supply curve: caused by changes in income and wealth, change in time preferences (when to spend $; refers to the fact that people prefer to receive goods and services sooner thanlater), and consumption smoothingDemand Curve Change- Movement along demand curve: caused by change in interest rates- Shift in demand curve caused by: changes in productivity of capital, changes in investor confidence In equilibrium, savings = borrowed Lecture from 2/25Indirect finance: savers deposit funds; banks lend to borrowersDirect finance: savers buy financial securities from borrowersThere is an inverse relationship between the price of a bond and its yield (interest rate) Interest rate: (face value-price at inception)/price at inceptionDefault risk: risk that borrower will bot pay off the bond- the greater the risk, the lower the price (and higher the interest rate of the bond)3/2economic rate  growth rate per capita GDPeconomic growth formula=%change in nominal GDP-%change in prices-%change in population=%change per capita Real GDPnominal GDP growth – price growth (inflation) – real GDP growth – population growth = real per capita GDP growth = economic growth Rule of 70-how long does it take for growth -if the annual growth rate is X%, the size of that variable doubles every 70/X yearsSources of economic growth- resources- technology- institutionsBrain drain: skilled professionals emigrate out of the country 3/4The Great Recession: - longer in length & deeper in effects than any other recession - mainly Dec. 2007 – June 2009 - while institutional breakdowns affected aggregate supply, aggregate demand (total spending) was affected by 2 factors: decrease in wealth decrease in expected income- 2012 recession officially over; effects linger unemployment remained at 8% GDP growing at rate of less than 2%Great Depression:- Economy contracted by 30% from 1929-1933- Took 7 years for real GDP to return to its pre-recession #’s - Actually 2 separate recessions (1929-1933, 1937-1938)- Primary cause: decrease in aggregate demand  Also factor: faulty macro-economic policy - Oct. 19, 1929 = Black Thursday - Gov. reduced money supply when should’ve increased Hoped to control stock prices Policy error involved banks- Over 9000 banks failed- Gov. had ability to lend to these banks, but did not   further $$ supply decreased- main reason for start of great depression: decline in money supply + resulting decrease in aggregate demand - Hoover and Roosevelt raised taxed thus further reducing money supply to consumer- Smooth Hawley Act tariffs (further reduced AD)Big Disagreement in Economic PolicyClassical (Hayes) vs. Keynesian economists - Classical Long run  Equilibrium will happen naturally  Market will correct itself (leave it alone) No significant role for government  Key side= supply  Laissefaire - Keynesian  Short term  Counter cyclical policies  Economy cannot correct itself Spend  Key side of market= demand Government intervention is essential for


View Full Document

IUPUI ECON 202 - Exam 2 Study Guide

Documents in this Course
Load more
Download Exam 2 Study Guide
Our administrator received your request to download this document. We will send you the file to your email shortly.
Loading Unlocking...
Login

Join to view Exam 2 Study Guide 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 Exam 2 Study Guide 2 2 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?