Intermediate Macroeconomics ECON 15575084 Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” Day 8 卜安吉

Intermediate Intermediate MacroeconomicsMacroeconomics

ECONECON 1557508415575084

Dr. Andrew L. H. ParkesDr. Andrew L. H. Parkes““A Macroeconomic Understanding for use in A Macroeconomic Understanding for use in

Business”Business”

Day 8Day 8

卜安吉卜安吉

Principles of Macroeconomics, Day Principles of Macroeconomics, Day 88

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October 6, 2008October 6, 2008


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October 7, 2008October 7, 2008


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Markets Plunge Despite Markets Plunge Despite Hint of Rate CutHint of Rate Cut

Stocks plunged on Tuesday Stocks plunged on Tuesday afternoon — shedding 200 points in afternoon — shedding 200 points in the final hour of trading alone — the final hour of trading alone — despite reassurances from the despite reassurances from the chairman of the Federal Reserve, chairman of the Federal Reserve, Ben S. Bernanke, that the central Ben S. Bernanke, that the central bank was prepared to lower interest bank was prepared to lower interest rates, words that many investors had rates, words that many investors had said they were waiting to hear. said they were waiting to hear.


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““You are getting all the things that you You are getting all the things that you would think the equity markets would would think the equity markets would respond very favorably to,” Steve respond very favorably to,” Steve Sachs, director of trading at Rydex Sachs, director of trading at Rydex Investments, said. “But at this point it Investments, said. “But at this point it just doesn’t seem to be doing it. It’s just doesn’t seem to be doing it. It’s the attitude of “Sell” — regardless of the attitude of “Sell” — regardless of what the news is.” what the news is.”

This is the definition of a BEAR market!This is the definition of a BEAR market!http://www.nytimes.com/2008/10/08/business/08markets.html?hp


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This is the definition of a BEAR This is the definition of a BEAR market!market!


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With Outlook Dim, Bernanke With Outlook Dim, Bernanke Says Fed May Act on RatesSays Fed May Act on Rates

““Over all, the combination of the Over all, the combination of the incoming data and recent financial incoming data and recent financial developments suggests that the developments suggests that the outlook for economic growth has outlook for economic growth has worsened and that the downside worsened and that the downside risks to growth have increased,” Mr. risks to growth have increased,” Mr. Bernanke told members of the Bernanke told members of the National Association for Business National Association for Business Economics.Economics.


88


In an address that was at In an address that was at once sobering but hopeful, at once sobering but hopeful, at least for the long term, Mr. least for the long term, Mr. Bernanke hinted strongly that Bernanke hinted strongly that the Fed’s Board of Governors the Fed’s Board of Governors would probably would probably lower interest lower interest rates at its next meeting, on rates at its next meeting, on Oct. 28 and Oct. 29. Oct. 28 and Oct. 29.


99


Only a few weeks ago, the Fed’s Only a few weeks ago, the Fed’s official posture was that inflation official posture was that inflation was a serious concern. But now, was a serious concern. But now, even though the outlook remains even though the outlook remains uncertain, inflation has eased uncertain, inflation has eased somewhat. “In light of these somewhat. “In light of these developments, the Federal Reserve developments, the Federal Reserve will need to consider whether the will need to consider whether the current stance of policy remains current stance of policy remains appropriate,” Mr. Bernanke said. appropriate,” Mr. Bernanke said.

http://www.nytimes.com/2008/10/08/business/economy/

08bernanke.html?hp


1010

Europe Seeks Unified Policy Europe Seeks Unified Policy on Bank Crisison Bank Crisis

LUXEMBOURG — The 27 members of LUXEMBOURG — The 27 members of the European Union approved the European Union approved measures Tuesday aimed at measures Tuesday aimed at highlighting their determination to highlighting their determination to combat a spreading banking crisis combat a spreading banking crisis together. Still, while finance together. Still, while finance ministers agreed to raise the ministers agreed to raise the guarantee for bank deposits, they guarantee for bank deposits, they could not settle on a common level. could not settle on a common level. http://www.nytimes.com/2008/10/08/business/worldbusiness/08europe.html?hp


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Europe Seeks Unified Policy Europe Seeks Unified Policy on Bank Crisison Bank Crisis

It was the first time that all 27 countries in the It was the first time that all 27 countries in the European Union had signed up to a common European Union had signed up to a common approach. But it came after four furious days approach. But it came after four furious days of diplomacy that have underscored the lack of diplomacy that have underscored the lack of institutions for dealing with cross-border of institutions for dealing with cross-border financial shocks. financial shocks.

““We will be ready to respond as the We will be ready to respond as the situation evolves,” said Christine Lagarde, situation evolves,” said Christine Lagarde, the French finance minister, who was the French finance minister, who was chairwoman of the meeting. “This is not a chairwoman of the meeting. “This is not a one-off declaratory act.” one-off declaratory act.”


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Consumer Borrowing Falls Consumer Borrowing Falls for First Time in Decadefor First Time in Decade

WASHINGTON (AP) — WASHINGTON (AP) — Consumer borrowing Consumer borrowing fell in August for the fell in August for the first time in more than first time in more than a decade as a decade as households, battered households, battered by rising job layoffs by rising job layoffs and the decaying and the decaying economy, cut back economy, cut back sharply on their use of sharply on their use of credit. credit.

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Three GoalsThree Goals

Make sure to know the Make sure to know the goals,goals,

As well as, As well as, – Match an indicator to Match an indicator to

eacheach

– And have a value for the And have a value for the indicatorindicator


1414

Four problems with using the CPI

for a Perfect measure of a COLANIPA Accounts – NIPA Accounts –

Income and Income and Expenditures – Expenditures – real GDP, more real GDP, more next weeknext week

Growth rate Growth rate calculationscalculations


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Three Effects of a Price Change on ADThree Effects of a Price Change on AD

An increase in An increase in PP reduces the reduces the quantity of g&s quantity of g&s demanded because:demanded because:

P

Y

AD

P1

Y1

• the wealth the wealth effect (effect (CC falls) falls)

P2

Y2

• the interest-rate the interest-rate effect (effect (II falls) falls)

• the exchange-rate the exchange-rate effect (effect (NXNX falls) falls)


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Know the Know the ADAD ShiftsShiftsAny event that Any event that changes changes CC, , II, , GG, , NXNX or or MMss

– – except a change except a change in in PP

– – will shift the will shift the ADAD curve.curve.

P

Y

AD1

AD2

Y2

P1

Y1

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Intermediate Macroeconomics ECON 15575084 Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” Day 8 卜安吉