Honors Principles of Macroeconomics
Honors Principles of Macroeconomics ECON 105
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This 3 page Class Notes was uploaded by Elva D'Amore Sr. on Monday October 19, 2015. The Class Notes belongs to ECON 105 at Radford University taught by Charles Vehorn in Fall. Since its upload, it has received 11 views. For similar materials see /class/224741/econ-105-radford-university in Economcs at Radford University.
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Date Created: 10/19/15
ECON 105 Review Chapters 8 15 Chapter 8 Aggregate Demand AD C 1 G X 71M Y GDP Circular flow 7 from consumers to spending and saving nancial sector to government spending to the trade sector to rms that pay workers to workers that pay taxes and use their disposable income to save or purchase consumption goods Consumption function 7 C f W P r Ye where W wealth P the price index r real interest rate or and Ye expected future income Chapter 9 From the IncomeExpenditure 450 line diagram to the AD curve Real Expenditure I C11GX7M HereITfromIotoII I I C10GX M In Real GDP Y Price L39evel The oversimpli ed multiplier ll 7 MPC I How does the multiplier work De ne the marginal propensity to consume MPC v AD1 ADO Real GDP Y P0 Y 0 1 Chapter 10 Aggregate Supply AS AS fP W P01 Tech Prod L K A81 Recessionary and in ationary gaps P AS P Stag ation in ation TE and u Market s selfcorrecting mechanism AD 1 YF Y through changes in wages Chapter 1 1 What does the oversimpli ed multiplier ignore variable imports price level changes income tax and feedbacks on i Expansionary scal policy T G i T T Transfer payments Contractionary scal policy i G T T i Transfer payments Supplyside tax cuts P K Asl P1 AS 2 P 0 gtlt ADI GDP Y0 Y1 Y2 Chapter 12 Money de ned as M1 narrow or M2 broad we will call the money supply Ms Banks 7 Balance Sheet Taccounts where Assets Liabilities Net Worth or Assets 7 Liabilities Net Worth Bank balance sheet items reserves required reserves excess reserves loans outstanding checking deposits stockholders equity Assets I iabilities Net Worth Ms creation 7 while one bank cannot create more money the banking system as a whole can expand the money supply through successive loans The money multiplier determines by how much MS expands or contracts Chapter 13 Income a ow is related to Money a stock and the Fed monetary authority uses this relationship When it conducts monetary policy Monetary policy 7 Conventional 1 open market operations 2 A discount rate 3 A reserve 39 U quot 39 quot quot Easing long term assets Operation Twist portfolio composition longterm lending etc The market for bank reserves behaves like any other market where the interest rate is the price of reserves The supply of reserves is controlled by the Fed and the demand for reserves is affected by changes in prices P and income Y Interest S rate D Bank reserves Open market operations means the Fed buys or sells government bonds If Fed buys bonds gt EXpansionary Monetary Policy gt injects Money into the economy MST gt in gt I T gt ADT gt YT PT If the Fed sells bonds gt Contractionary Monetary Policy gt it takes Money out of circulation M50 gt in gt I l gt ADi gt Yi Pi Chapter 14 Leverage 7 using borrowed funds normally measured by the ratio assetsequity Asset price bubble 7 a rise in price above the fundamental value of the asset Spread 7 the difference between a shortterm interest rate and a longterm interest rate Risk Premium 7 the difference between the interest rate on a riskfree asset Treasury Bill and the interest rate on a risky asset Securitization 7 loans are transformed into market securities when they are packaged together into a bondlike instrument that is sold to investors Collateral 7 an asset that a borrower pledges to guarantee repayment of a loan The collapse ofthe financial system i1 and iC thus iAD gt iY iP as shown below Price Level P0 P1
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