Intermediate Macroeconomics ECON 15575084

Intermediate MacroeconomicsECON15575084 Dr. Andrew L. H. Parkes “A Macroeconomic Understanding for use in Business” Day 8 卜安吉

October 6, 2008 Principles of Macroeconomics, Day 8

October 7, 2008 Principles of Macroeconomics, Day 8

Markets Plunge Despite Hint of Rate Cut • Stocks plunged on Tuesday afternoon — shedding 200 points in the final hour of trading alone — despite reassurances from the chairman of the Federal Reserve, Ben S. Bernanke, that the central bank was prepared to lower interest rates, words that many investors had said they were waiting to hear. Principles of Macroeconomics, Day 8

Markets Plunge Despite Hint of Rate Cut • “You are getting all the things that you would think the equity markets would respond very favorably to,” Steve Sachs, director of trading at Rydex Investments, said. “But at this point it just doesn’t seem to be doing it. It’s the attitude of “Sell” — regardless of what the news is.” • This is the definition of a BEAR market! http://www.nytimes.com/2008/10/08/business/08markets.html?hp Principles of Macroeconomics, Day 8

Markets Plunge Despite Hint of Rate Cut • This is the definition of a BEAR market! Principles of Macroeconomics, Day 8

With Outlook Dim, Bernanke Says Fed May Act on Rates • “Over all, the combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased,” Mr. Bernanke told members of the National Association for Business Economics. Principles of Macroeconomics, Day 8

With Outlook Dim, Bernanke Says Fed May Act on Rates • In an address that was at once sobering but hopeful, at least for the long term, Mr. Bernanke hinted strongly that the Fed’s Board of Governors would probably lower interest rates at its next meeting, on Oct. 28 and Oct. 29. Principles of Macroeconomics, Day 8

With Outlook Dim, Bernanke Says Fed May Act on Rates • Only a few weeks ago, the Fed’s official posture was that inflation was a serious concern. But now, even though the outlook remains uncertain, inflation has eased somewhat. “In light of these developments, the Federal Reserve will need to consider whether the current stance of policy remains appropriate,” Mr. Bernanke said. http://www.nytimes.com/2008/10/08/business/economy/08bernanke.html?hp Principles of Macroeconomics, Day 8

Europe Seeks Unified Policy on Bank Crisis • LUXEMBOURG — The 27 members of the European Union approved measures Tuesday aimed at highlighting their determination to combat a spreading banking crisis together. Still, while finance ministers agreed to raise the guarantee for bank deposits, they could not settle on a common level. http://www.nytimes.com/2008/10/08/business/worldbusiness/08europe.html?hp Principles of Macroeconomics, Day 8

Europe Seeks Unified Policy on Bank Crisis It was the first time that all 27 countries in the European Union had signed up to a common approach. But it came after four furious days of diplomacy that have underscored the lack of institutions for dealing with cross-border financial shocks. • “We will be ready to respond as the situation evolves,” said Christine Lagarde, the French finance minister, who was chairwoman of the meeting. “This is not a one-off declaratory act.” Principles of Macroeconomics, Day 8

0 Consumer Borrowing Falls for First Time in Decade WASHINGTON (AP) — Consumer borrowing fell in August for the first time in more than a decade as households, battered by rising job layoffs and the decaying economy, cut back sharply on their use of credit. Principles of Macroeconomics, Day 8 12

0 Three Goals Make sure to know the goals, • As well as, • Match an indicator to each • And have a value for the indicator Principles of Macroeconomics, Day 8

0 Four problems with using the CPI for a Perfect measure of a COLA NIPA Accounts – Income and Expenditures – real GDP, more next week Growth rate calculations Principles of Macroeconomics, Day 8

P P2 Y Y2 0 Three Effects of a Price Change on AD An increase in P reduces the quantity of g&s demanded because: • the wealth effect (C falls) P1 • the interest-rate effect (I falls) AD • the exchange-rate effect (NX falls) Y1 Principles of Macroeconomics, Day 8

P P1 AD2 AD1 Y Y1 Y2 0 Know the ADShifts Any event that changes C, I, G, NX or Ms – except a change in P – will shift the AD curve. Principles of Macroeconomics, Day 8

Intermediate Macroeconomics ECON 15575084