Macro 15.pdf

2. Lecture 15 Macroeconomics

3. Opening Prayer

4. Quiz Master

7. 1979 2022 Change Percentage Change Price $399.99 $74.00 -$325.99 -81.5% Hourly Income $3.69 $14.50 $10.81 293.0% Time Price 108.40 5.10 -103.29 -95.3%

8. 1979 2022 21.25x

10. Microwave 2022: 108.4 hours 5.1 hours Time decreased by 95.3% 21.25 Microwave 1979:

11. Oven: Microwave: 28 minutes 1 minute 15 seconds Time decreased by 95.5% 22.4 for 1

12. Oven: Microwave: 28 cents 0.41 cents Energy decreased by 98.5% 68.3 to 1

13. Microwave -95.3% Heating Time -95.5% Electricity -98.5% Burrito-nomics

14. Quiz 1.What are the four monetary tools? 2. How do you use the tools if the problem is in fl ation? 3. How do you use the tools if the problem is unemployment? 4. How do you use the tools if the problem is stag fl ation?

15. Money Supply Tools Excess Reserves Rate Open Market Operations Discount Rate Reserve Ratio

16. Central Bank Recession Unemployment In fl ation

17. AD Real GDP Growth Rate In fl ation Rate π LRAS SRAS Recession In fl ation

18. Reserve Ratio Fraction of deposits that must be held in reserve

19. Reserve Ratio RR = 1÷ MM Money Multiplier MM = 1÷ RR

21. Discount Rate Rate the FED charges member banks

22. Discount Rate Currently 0.25% Average 4.45% (1950 - 2021)

24. Discount Rate In fl uences other rates

25. 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Time to Maturity Interest Rate FED Changes Discount Rate Other Rates Follow

26. Open Market Operations Buying and Selling Financial Instruments

28. Banks now have more cash to loan Central Bank Public Banks Increase Money Supply? Buy bonds for cash

29. Banks now have less cash to loan Central Bank Public Banks Decrease Money Supply? Sell bonds for cash

30. What do banks do with extra money? Excess Reserves The FED will pay them interest

31. Excess Reserves Interest If the rate is high enough you will leave it in the bank. Sets a fl oor

33. Problem Recession Shift AD to Right In fl ation Shift AD to Left Tools Increase Money Supply Decrease Money Supply Reserve Ratio Lower Raise Discount Rate Lower Raise Open Market Operations Buy Bonds from the Banks Sell Bonds to the Banks Excess Reserves Interest Rate Lower Raise

34. Disin fl ation Slower growth in in fl ation rate 8% to 3% De fl ation Negative in fl ation 8% to -3%

35. Illiquid No cash Net worth to pay debt, but can’t sell quick and without loss Insolvent No cash No net worth to pay debt

36. Illiquid Assets are frozen

37. Quantitive Easing Buying lots of other fi nancial instruments. Lots of illiquid assets

38. Lender of Last Resort Bailouts

39. Problem Money Supply AD Shift Reserve Ratio Discount Rate Open Market Operations Excess Reserve Rate In fl ation Unemployment Stag fl ation Left Increase Increase Sell Bonds Increase Right Decrease Decrease Decrease Buy Bonds Increase Decrease

40. Chapter 14 Transmission and Ampli fi cation

41. Little things can cause big things

43. Life is not linear Good Bad

44. Transmission and Ampli fi cations Intertemporal Substitution Uncertainty and Irreversible Investments Labor Adjustment Costs Time Bunching Collateral Damage

45. Uncertainty and Irreversible Investments Bad news creates uncertainty uncertainty makes you wait Sunk Costs Cannot reverse

47. Labor Adjustment Costs Structural Unemployment What to do? Wait Move Retraining Costs

48. Time Bunching Everything at once Together Cities are economic clusters Seasons

Macro 15.pdf

Macro 15.pdf

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