November 7 notes

November 7 notes - Investment and Monetary Policy When the...

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Investment and Monetary Policy •W h e n t h e F e d c o n d u c t s O p e n M a r k e t Operations (OMO), how is the economy affected? •R e c a l l : •H o w a r e P & Y a f f e c t e d ? Missing Piece : Effect of Changes in Interest Rates on Aggregate Planned Spending OMPur , & D DM i ±n n p
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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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¾ 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 p n < < < <
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Terms of Loans •T e r m s o f L o a n s ¾ Amount of Downpayment ¾ Pay Back Periods ¾ Etc When ,Terms of Loans also “Loosen” When ,Terms of Loans also “Tighten” i p i n
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This note was uploaded on 01/20/2012 for the course ECON 180.101 taught by Professor Maccini during the Fall '08 term at Johns Hopkins.

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November 7 notes - Investment and Monetary Policy When the...

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