■ Decrease, AD, Increase ■ P increases with more spending, P increase → more production ● Result: Y increases and millions more employed (which is the idea by the stimulus from the FED) ○ Question: You’re using AD & SRAS to analyze the economy. What is the correct order? (eq = equilibrium) ■ Event, curve shifts, new eq., new P&Y ■ For example, question previous ○ Worksheet Question 2: After the oil price rise, the economy ____ be in equilibrium and there was ____. ■Would, inflation■1. Oil shock, 2. Sras shifts, 3. New eq., 4. P increases and Y decreases ○ Energy (oil) price shock ■ 1973, 1979, 1990, 2008
■ One of the most common causes of recession (section 3) ○ Worksheet Question 3: As a result of the change in G, there is ___ and ____. ○Question: How do AD and SRAS work together? ○Question: What influences prices (P) and production and spending (Y)? Section 5: Monetary & Fiscal Policy ● Financial Markets and assets ○ What do they have in common? ■ Checking account ● ex) PNC ■ Student loan ■ Car loan ■ Mortgage ■ Bond ■ Stock ● You can touch assets of all of these things, but not the things themselves ● All are “financial assets” - a legal claim for future payments ○ They are assets for one party & a liability for the other party ○ Assets ■ Something you own ■ Ex) Checking account ○ Liability ■ Something you owe ■ Ex) Student loan, mortgage ○ Security ■ Financial asset that can be sold: stocks & bonds ○ Mutual fund ■ Funds pooled with other investors to buy securities ■ Ex) vanguard: 20 M investors ■ Ex) $157 B in Vanguard 500 m.f. ○ Stock is ■ A “share”is ownership in a corporation ■ Anyone can buy or sell ■ Owners receive profits as “dividends” ■ Hopefully selling price > purchase price ■ Sold by corporations to buy K (IPO)
● Ex) Instructure (11/15), Snapchat (3/17) ■ VERY difficult to predict stock prices ○ Ex) One year U.S Treasury Bill (T-Bill) auction on 3.28.17 ■ Investors bid to pay now to receive a set amount ($100 to $5 million - “face value”) in 1 year from the U.S. Treasury ■ For $100 face value, winners pay $98.96 ■ The borrower (bond issuer) promises a fixed nominal payment to the investor (lender or bond buyer) at a set date ■ Example ● Bonds… 8 year treasury note ● On 2.15.79 investors paid $1000 for this bond ● Got $1000 on 2.15.87, Twice a year from 1979 till 1987 they got $45 (coupon) ○ Most bonds: ■ >1 year maturity with twice annual payments (coupons) + face value ● Ex) US treasury bonds: 20-30 years ● Ex) Us treasury notes: 2-10 years ● Ex) US treasury bills: < 1 year & no coupon (less than.equal to) ■ Question: Bonds ____ a security and they ____ a liability for the issuer ● Are, are ■ Bond: A security sold by large business or governments issuer that offer fixed future payments to buyers ■ Existing bonds are bought and sold in very active markets- prices change by the second ■ Question: If there was unexpected inflation bond owners would be ___ and firms and governments that issued bonds would be _____.
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