ECON 3222/0207 Handout 4
Aggregate Demand: Loanable Funds Market and Market for Money
This Handout reviews a standard way of modeling the loanable funds market and the market
for money in the basic Macro-economic model. Then we will derive the Aggre
Course Outline and Background
(1) Shadow Banking: Economics and Policy by Stijn Claessens, Zoltan Pozsar, Lev Ratnovski,
and Manmohan Singh, IMF Staff Discussion Note, December 4, 2012.
(2) Regulating the Shadow Banking
Monetary Policy: inflation, expectation and rules
Diagram 1: Structure of an economy - Foundation of AS-AD Analysis
General Price Level
(P), and Aggregate
Subprime Crisis and Immediate Fed Responses
(1) Deciphering the Liquidity and Credit Crunch, 2007-2008, by Brunnermeier, Markus K.,
Journal of Economic Perspectives, Volume 23, Number 1, Winter 2009, 77-100.
Problem Set (1)
1. (a) Traditional deposit-taking banks are typically illiquid for the following reasons.
On one hand, their liabilities are primarily checking or saving account deposits which allow the
depositors to wit
Subprime Crisis, Great Recession, Conventional Monetary Policy and Liquidity Trap
This Handout adopts a conventional AS-AD model to:
(1) capture the Sub-prime Crisis and the Great Recession, and
Empirical Project - Guidelines
This is an empirical project - you have to collect the real world data. In particular, you have to obtain the
relevant data from FRED, a database available in the website of the Federal Reserve Bank of St. Lou
Problem Set (1)
1. (a) Why are the traditional deposit taking banks inherently illiquid?
(b) How can the bankruptcy of a deposit-taking bank be the outcome of a self-fulfilling prophecy?
Define the concept of self-fulfilling prophecy.
Appendix I: Yield to Maturity Definition and Computation
Yield to Maturity is the single (annual) interest rate that makes the NPV of a debt security (if
held to maturity) equal to zero.
Consider a fixed rate bond maturing in T years with an ann
ECON 3222 / 0207
Empirical Project: Interim Report
Due: October 11, 2016 (Tuesday), 2:00 pm (both soft copy and hard copy)
KO Yee On
Macroeconomic data in the current period
Quarter 1, 2015
Quarter 2, 2015