econ101fall11lecture17

- Investment and Monetary Policy When the Fed conducts Open Market Operations(OMO how is the economy affected Recall OMPur DD M i How are P Y

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Investment and Monetary Policy • When the Fed conducts Open Market Operations (OMO), how is the economy affected? • Recall: • How are P & Y affected? Missing Piece : Effect of Changes in Interest Rates on Aggregate Planned Spending OMPur , & D DM i 
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Determinants of Investment Purchases of New Plant & Equipment Cost of Borrowing – Interest Rates on Bank Loans & Corporate Bonds Terms & Availability of Loans Expected Future Demand Price or Purchase Cost of Plant & Equipment Tax Policies
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Purchases of New Housing Cost of Borrowing – Mortgages Rates Terms & Availability of Mortgages Current Prices of New Houses Expected Future Prices of Houses Tax Policies
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Cost of Borrowing & Investment Spending : Mostly Financed by Borrowing Interest Rate = Cost of Borrowing , , Investment Spending i OTE i I OTE i I  
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Terms of Loans • Terms of Loans Amount of Downpayment Pay Back Periods Etc When ,Terms of Loans also “Loosen” When ,Terms of Loans also “Tighten” i i
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This note was uploaded on 01/12/2012 for the course ECON AS.180.101 taught by Professor Maccini during the Fall '08 term at Johns Hopkins.

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- Investment and Monetary Policy When the Fed conducts Open Market Operations(OMO how is the economy affected Recall OMPur DD M i How are P Y

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