Intermediate Macroeconomics ECON 15575084

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Intermediate MacroeconomicsECON 15575084

• Dr. Andrew L. H. Parkes
• A Macroeconomic Understanding for use in
  Business
• Day 8

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October 6, 2008
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October 7, 2008
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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.

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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 doesnt seem to be doing it. Its 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/08marke
ts.html?hp
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Markets Plunge Despite Hint of Rate Cut

• This is the definition of a BEAR market!

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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.

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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 Feds Board of Governors
  would probably lower interest rates at its next
  meeting, on Oct. 28 and Oct. 29.

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With Outlook Dim, Bernanke Says Fed May Act on
Rates

• Only a few weeks ago, the Feds 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
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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/worldbu
siness/08europe.html?hp
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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.

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Consumer Borrowing Falls for First Time in Decade
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• 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.

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Three Goals
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• Make sure to know the goals,
• As well as,
• Match an indicator to each
• And have a value for the indicator

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Four problems with using the CPI for a Perfect
measure of a COLA
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NIPA Accounts Income and Expenditures real
GDP, more next week Growth rate calculations
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Three Effects of a Price Change on AD
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• An increase in P reduces the quantity of gs
  demanded because

• the wealth effect (C falls)

P1

• the interest-rate effect (I falls)

AD

• the exchange-rate effect (NX falls)

Y1
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Know the AD Shifts
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• Any event that changes C, I, G, NX or Ms
• except a change in P
• will shift the AD curve.