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Aided financial system (bank bailouts)○So great depression didn’t occur again. When banks go down so does the economy. ●Together all of that stuff ^^ have kept US from entering the depression again○Ending part B- calculating and understanding real GDP■Puzzle: In 2001 recession, GDP rose by $190 trillion. How can this be? Should GDP fall in a recession?●Question- Which do you think rose?○Nominalor real GDP ■Nominal rose because P*Q, the quantity produced barley fell at .5% and prices rose 2%, so the increase of prices counteracted the loss of jobs etc. in recession■Real GDP fell by $40 billion ■Nominal GDP rose by $190 billionPart C: Monetary & Fiscal Policy ●Money is an asset that does each of the following ○Medium of exchange○A store of value■Piggy bank, stock○A unit of account■How we price things, in another country it will be in euroor what not but always priced in terms of money○Standard of deferred payment■Loan, promise to pay them back and do so in the terms ofdollars○US - M1 (M for money) ≈ cash + checkable deposits (checking accounts- checks or debit card now)($3.3trillion) ○M2=M1 + savings accts. In bank ($13.3 trillion)■Broader category than M1, because you can’t make purchases through your savings account like you would checking. In short, it’s a close substitute to the medium of exchange.●Questions○Every time a dollar is used to make a purchase in a country, thiswill show up in a GDP?■No .. purchase of illegal goods, intermediate goods etc.○How many of the following are considered money in the US?■Corporate stock
■US savings bond ■Capital owned by boeing■Investment by ford in a factory ■Funds in a checking account■US currency (cash)■In this problem he was asking what is money, not what is does.. In the money equation above it says M as in moneyequals cash and checkable deposits as in check accounts or debit cards■Monetary policy changes in M1 and M2●Interest rates○Rate at which we borrow and lend at ■Ex) Student loans (Stafford)●2017 interest rates- 3.76% ○“10 year treasury Note” + 1.81%●2007 interest rates- 7.00%●Average debt of a penn state graduate: $37,000●Monthly repayment over 10 years○@3.76: $370 a month in payments ○@7: $430 ($7200 more in total)○Where do interest rates come from?■Supply and demand from lenders and borrowers●Monetary policy is apart of this●Monetary policy○Conducted by the fed aka central bank of US, the federal reserve■In charge of currency○Established by congress and most key positions appointed by the president and confirmed by the Senate■Yet the fed is largely independent of the federal government by law because the terms. ○Congress tells the fed what they should focus on… “Dual Mandate”■“Promote effectively the goals of maximum employment, stable prices* and moderate long-term interest rates”●Stable prices would be 2% inflation per year ○Monetary policy is changes in interest rate & M1 & M2 to achieve these goals○Fed head chair: Janet Yellen■Also heads the “Federal Open Market Committee” (FOMC)●Decide what the fed can do to reach goals■