Oct 7 2010 Finance1 - Key Questions for the Day How do...

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1 Finance I Thursday, October 7, 2010 MGM 101 - Introduction to Management Functions Key Questions for the Day… How do government finances operate in connection with “business cycles”? How do governments attempt to balance inflation and employment levels? Why do government deficits & debt matter? What is Monetary Policy, and how does it work to achieve similar objectives as Keynesian/ Fiscal Policy? How have the financial instruments available to investors changed in recent years? What is yield? Why do (some) investments “make money”? A challenging set of concepts… Public debt sustainability has exploded as a serious issue in advanced economies, most notably in the Eurozone’s “PIIGS”—Portugal, Italy, Ireland, Greece and Spain—but also in many larger OECD economies, including the United States. These issues within the Eurozone stem primarily from a loss of competiveness, high wage growth and labor costs which outstripped productivity, undisciplined fiscal policies and, crucially, the appreciation of the euro between 2002 and 2008…” Prof. Nouriel Roubini, “Dr. Doom”, NYU/ Stern School of Business, Apr 19, 2010 “Fears of a disorderly crackdown on banks and financial markets triggered a crisis of confidence among investors yesterday that sent prices for stocks, oil and other risky assets reeling in a global flight to safety . US, European and Asian stocks tumbled, while trading in some eurozone government bond markets dried up in the wake of Germany's partial ban on naked short selling and ahead of a crucial vote on the US financial regulation bill . Financial Times, May 21, 2010 Today‟s goal is to begin to understand and apply the terminology & concepts of Introducing… inflation Inflation: increases in prices of goods & services throughout an economic system – Why does inflation happen? A simple (and imaginary!) example: In Sockholm , there are enough resources to make 1,000 pairs of identical socks each year (and nothing else in made or sold there, so people don‟t bother to save or go into debt – they just spend everything they earn on more socks) Conveniently, demand equals supply exactly, so the people of Sockholm want to buy all the socks that are made The government printed $5,000 of currency in 2009, and ensures that all times there is exactly $5,000 in circulation Each pair of socks will cost: $5,000/ 1,000 pairs of socks = ? Introducing… inflation (cont’d.)
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This note was uploaded on 07/02/2011 for the course MGM 101 taught by Professor Applyyard during the Fall '10 term at University of Toronto- Toronto.

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Oct 7 2010 Finance1 - Key Questions for the Day How do...

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