Final Notes - 17:45 NBER Cyclical Indactors Leading...

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17:45 NBER Cyclical Indactors Leading indicators tend to rise and fall in advance of the economy Examples Average weekly hours of production workers Stock prices Building permits Money supply Composite Index A weighted average of leading, coincident, or lagging economic indicators Combining data into a composite index creates a forecasting series with less random  fluctuation Smoother than the underlying individual data series and less frequently produce signals  of chance in economic conditions Federal Government Policy Federal government has three broad classes of tools which it uses to affect the  economy Fiscal policy Monetary policy  Regulation Fiscal Policy Government spending and taxing actions Affect demand for goods and services in the economy Adjust tax rate 
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Increase or decrease government spending Direct way to stimulate or slow the economy Slowly implemented  Due to compromise required between executive and legislative branches Monetary Policy Manupluation of the money supply to influence economic activity Indirect way to stimulate or slow evonomy Tools of monetary policy Open market operations Open Market Operations Federal reserve buys or sells bonds Reserve requirements Lowering reserve requirements allows banks to make more loans with eachother Discount Rate Interest rate Fed charges bnaks on short term loans
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A higher discount rate discourages banks and from borrowing from the Fed Reduces the effective money supply Money Supply Increase money supply Encourage investment Encourage consumption demand However, over longer periods, a higher money supply is believed to lead to a higher  price level Decrease money supply Take Aways Obviously strong link between financial markets and the economy Forecasting the link between financial markets and the economy has become especially  difficult during recent years Not only does a booming economy boost the stock market but a booming stock market  also boosts the overall economy
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17:45 Portfolio Management Theory Key Statistical Concepts Risk and risk aversion Mean/ expected return
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This note was uploaded on 01/08/2012 for the course AEM 4230 taught by Professor Bogan,v. during the Fall '08 term at Cornell University (Engineering School).

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Final Notes - 17:45 NBER Cyclical Indactors Leading...

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