Monetary Nuetrality

In class students took a quiz on the financial sector.  Afterwards, students continued to work with the Money Market Model and the Aggregate Supply/ Aggregate Demand Curve.  Students used the models to determine short-run effects of monetary policy on the economy (expansionary vs. contractionary).  Students also learned that in the long-run, monetary policy only affects nominal interest rates and price level.

The homework is listed below and the notes are attached.

Notes - Long-Run effects of Monetary Policy

HW - Read Modules 33 and 34

LR effects of Fiscal Policy on the Budget Deficit

In class students took a look at the budget balance (surplus or deficit) and saw how fiscal policy affects the budget balance (Government Savings = Taxation - Government Spending - Trade).  Remember, different types of fiscal policy (Taxations, Government Spending and Transfers) may have the same effect on the budget balance but not the same effect on the economy. 

We also discussed that running a deficit can be good if it eases a recession and increases unemployment.

The class notes are attached and the homework is listed below.

Notes - Fiscal Policy on the Budget Deficit

HW - Study for Quiz - The Financial Sector
          Read Module 31/32

Loanable Funds Market

In class students were introduced to the second macroeconomic model (6th overall) they will have to be familiar with on the upcoming quiz:  The Market for Loanable Funds.  One thing students must remember is that Investment is inversely related to Interest Rate; so interest rates increase, investment decreases....as investment is undertaken if and only if:  rate of return > interest rate.


The homework and notes are attached below.


Notes - Loanable Funds Market


Notes - Review - The Financial Sector


HW - Practice Quiz - The Financial Sector
          Read Module 30

Monetary Policy and the Liquidity Preference Model for Money Demand

In class we discussed the role of the Federal Reserve and the three policies they use to control money supply/economy (1. Reserve Requirement, 2. Discount Window, 3. Open Market Operations).

Afterwards, students were introduced to the first model in Section 5 (5th overall) which took a look at the opportunity cost/preference for holding cash. 

The homework is linked below and the notes are attached.

Notes - Monetary Policy and Liquidity Preference Model

HW - pgs.291-294 (10, 12, 14, 15, 22)

Also, read over the link below of the Federal Reserve web page:

History of the Federal Reserve

History of the US Economy (1900-Present)

In class we discussed the history of the US economy, the 5 economic crisis and the federal reserve system.  The 5 economic crisis are as follows:

1.  Panic of 1907 - Trusts speculating in stock market
2.  Great Depression (1930s) - Commodity Prices led to bank runs
3.  Savings and Loans Crisis (1980s) - High inflation, devaluation of S & L Assets (mortgages), bank
                                                              runs
4.  Long-Term Capital Management (1990s) - complicated derivatives/no market, devalued when try
                                                                           to sell...same assets devalued on other funds balance
                                                                           sheet.
5.  Subprime Lending/Housing Bubble (2008) - lending to undesirable individuals eventually leading
                                                                             to market failure (almost) because the financial
                                                                             system is interconnected.

We  also talked about the Federal Reserve System which is made up of a Board of Governors (7) appointed at various times by the president to serve 14 year terms.  Also, the 12 regional federal reserve banks. More information is linked below in the notes.

Notes - The Federal Reserve

HW - Read Modules 27 and 28

How Banks Make Money

In class we talked about the role of banks in our financial system.  Students should be familiar with the reserve ratio (% of reserves banks are required to keep on hand) set by the fed and bank regulation (FDIC, capital requirements, reserve requirements, discount window).   T accounts displaying a bank's (or business's) financial position were also discussed.

Finally, discussion surrounded banks ability to make money and the multiplying affect of a checkable bank deposit that is determined by the reserve ratio.

The notes are attached and the homework is listed below.

Notes - The Role of Banks

HW - Read Module 26 and Module 27

Money and Present Value

In class students took a quiz on Aggregate Supply/Aggregate Demand.  Afterwards, we reviewed the financial system, financial assets (stocks, bonds, loans), and financial intermediaries (mutual funds, pension funds, insurance agencies, banks).

Finally, we covered module 23 and module 24 which covered the role of money and different types of money.  Then we looked at Present Value in making choices.

The notes are attached and the homework is listed below.

Notes - Money and Present Value

HW - pg. 290 (5-9)
          Read Module 25 - Banking and Money Creation