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Lecture 12

ECO 200 Lecture Notes - Lecture 12: Federal Funds Rate, Credit Default Swap, Adjustable-Rate Mortgage


Department
Economics
Course Code
ECO 200
Professor
James D'Angelo
Lecture
12

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Review Macro Economics Test 3 NKU
Chapters 12, 14, 15 (skip asset liability tables), 16 and pages 385 to 389, 394, 395
Class notes and canvas modules
1. Money and Banking basics
Functions of money.
Fiat money, commodity money
Money Supply M1 and M2
Is our money backed by gold? Are credit cards money?
Demand for money (Transactions and asset)
2. Federal Reserve
Basic structure and functions of the Fed.
Ben Bernanke 60 minutes Video
FOMC
Last 5 Heads of Federal Reserve. (Fed Heads PowerPoint)
3. Financial Crisis
TARP, subprime loans, systemic risk, moral hazard, adjustable rate mortgage, credit
default swap, mortgage backed security, irrational exuberance, AIG , Bear Stearns,
Lehman brothers, Bubble. Systemic risk.
4. Fractional reserve banking spreadsheet page 317 chapter 15.
Required reserves and excess reserves, money multiplier. Required reserve ratio.
Formulas provided. Skip asset liability tables . Skip all other row in spreadsheet.
5. Keynes expansionary monetary policy to correct recession.
When rates are lowered handout.
3 tools of Keynes expansionary monetary policy
1. Open market operations / changing fed funds rate
2. Discount rate
3. Reserve requirement ratio / changing money multiplier, required reserves, and
excess reserves.
3 Graphs of Keynes expansionary monetary policy.
Money market supply and demand for money, Investment and interest rates, AD AS.
6. Keynes restrictive or contractionary monetary policy to correct inflation.
When rates are raised handout.
3 tools of Keynes expansionary monetary policy
1. Open market operations / changing fed funds rate
2. Discount rate
3. Reserve requirement ratio / changing money multiplier, required reserves, and
excess reserves.
No graph for the restrictive monetary policy case.
omoE

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7. History of Monetary policy. 1929 to 1932, , 2001 to 2018.
8. Keynes fiscal policy basics
AD = C + I + G + net exports
Expansionary fiscal policy: G up , T down, AD right . Corrects recession.
AD right and demand pull inflation.
AD right given horizontal AS, Vertical AS, upward sloping AS. Chapter 12
Contractionary fiscal policy: G down, T up, AD down , corrects Inflation, AD left
No graph
9. Supply Side model / Reaganomics. Chapter 12
AS shifters: input prices, technology, regulation, taxes, productivity
Compare with Keynes demand side economics
Cause of stagflation. AS left / Cure for stagflation. AS right
Cost push inflation.
Skip real balance effect, interest rate effect, foreign purchase effect p. 244
Difference between a Keynesian and Supply Side tax cut.
Laffer Curve p. 385, 389.
10. Presidential Economics
Reagan 1980s: Supply Side I
Bush 2001 to 2008 Supply Side II, TARP
Obama / Bernanke Monetary policy
11. Macro Models (compare these models)
Keynes demand side economics
Supply Side economics
Monetarism : MV = PQ P. 394, 395.
Classical
Articles and Videos on Canvas
Business Week article : Trickle down economics
USA today article on Reaganomics
Tax cuts in Camelot article.
Ben Bernanke 60 minutes video.
Test Format
30 Multiple choice.
10 Match
20 points problems and graphs.
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