Econ110BW11 - Lec12 A - GR_ol (4)

Econ110BW11 - Lec12 A - GR_ol (4) - Macroeconomics B Econ...

Info iconThis preview shows pages 1–16. Sign up to view the full content.

View Full Document Right Arrow Icon
Macroeconomics B Econ 110B–Winter 2011 Prof. Giacomo Rondina Lecture 12: Review Session ahead of Midterm
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Announcements Midterm Material Class Notes Online Lecture Notes (webct.ucsd.edu, folder “Lecture Notes”) Chapters 14 17 Problem Sets 1 to 3(a and b) Midterm Format Multiple Choice (20% of it) Short Answer Questions (all the rest) Closed book exam, no CC’s Calculator allowed 2 Expectations, Consumption and Investment (Ch. 16)
Background image of page 2
± The Two Period Model and the Real Interest Rate Part B, Midterm Spring 2010 3 Expectations: the Basic Tools (Ch. 14) Today Future $Y $1500 $3300 Price $2.00 $2.00 i 10% $ $3300 ( ) $ $ $1500 $4500 11 . 1 0 Y aWY i =+ = + = ++ . 1 0 ( ) 1 1.1 e i br π += = = + ( ) ( ) () $$ 1 1 ( ) , since ' ' $ $ ' $3300 $ 1 $1500 $ $ $857.14 ' 1178.6 $2 YSi YS cC C C C PP P P Si S SC C + + −− == = = =⇒ = = =
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
± The Two Period Model and the Real Interest Rate Part B, Midterm Spring 2010 4 Expectations: the Basic Tools (Ch. 14) Today Future $Y $1500 $3300 Price $2.00 $2.00 i 10% ( ) maximum borrowing $ 20% $3300 $660 dS = −× = ( ) $ $660 1 .10 $1500 $660 =1080, =1287 $2 Y CC −+ + == $ $2750 ( ) $ $ $2000 $4500 so 1178.6 11 . 1 0 Y eWY C C i =+ = + = = = ++ ( ) $ 20% $2750 $550 but ' 1178.6 attainable with less borrowing than $550 fS = =
Background image of page 4
± The IS depends on the real interest rate 5 Expectations: the Basic Tools (Ch. 14)
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
± The IS depends on the real interest rate 6 Expectations: the Basic Tools (Ch. 14) ( ) ( ) :, e IS Y C Y T I Y i G π = −+ +
Background image of page 6
± The LM depends on the nominal interest rate 7 Expectations: the Basic Tools (Ch. 14) () M YL i P =
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Nominal and Real Interest Rates, and the IS LM Model 8 Expectations: the Basic Tools (Ch. 14) LM i Y IS ( π e A ) i A Y A r A π e A r A =i A - π e A A
Background image of page 8
Nominal and Real Interest Rates, and the IS LM Model ± Changes in Expected Inflation 9 Expectations: the Basic Tools (Ch. 14) i Y IS ( π e A ) LM i A Y A r A π e A π e B > π e A IS ( π e B ) Y B i B r A =i A - π e A A B
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Nominal and Real Interest Rates, and the IS LM Model ± Changes in Expected Inflation 10 Expectations: the Basic Tools (Ch. 14) i Y IS ( π e A ) LM i A Y A r A π e B π e B > π e A IS ( π e B ) Y B i B r B r B =i B - π e B A B
Background image of page 10
Nominal and Real Interest Rates, and the IS LM Model 11 Expectations: the Basic Tools (Ch. 14) () M YL i P = ( ) ( ) , e YC Y T I Y i G π = −+ +
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Nominal and Real Interest Rates, and the IS LM Model Policy Question: What are the effects of a permanent increase in money growth? Short Run vs Medium Run 12 Expectations: the Basic Tools (Ch. 14) () M YL i P = ( ) ( ) , e YC Y T I Y i G π = −+ +
Background image of page 12
Nominal and Real Interest Rates, and the IS LM Model What are the effects of an increase in money growth? Short run Medium run What happens between the short run to the medium run? 13 Expectations: the Basic Tools (Ch. 14) r i Y i N rr = N YY =
Background image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Nominal and Real Interest Rates, and the IS LM Model Effects of an increase in money growth (g m ) 14 Expectations: the Basic Tools (Ch. 14)
Background image of page 14