FNCE 101 Lecture 10: 4.20.15 Clas Notes
Document Summary
Investments is an increasing function of interest rates: savings is a decreasing function of interest rates, the lf is where the fed policy affects the goods and labor markets, fed"s expansionary policy (prints money or buys bonds) > sr: increases ad; new general equilibrium at higher price and higher output (but inflation is higher than expected) > lr: economy reverts back and as increases (moves backward) back to original output, fed can change output by changing liquidity, red and blue lines are 95% confidence bounds. It"s good to assume that the government can raise g and get the economy out of a permanent stagnation situation (permanently below potential output: unconventional monetary policy, fed won"t modify base rate (won"t touch current funds rate) but will still lower ir relevant to the economy, you can only affect risk premium (i 90 days formula) i (1 day) can"t be 0.
