Keynesianism v Monetarism MK, Unit 23

Reading p. 117 Read the text and underline the main ideas connected with classical economic theory, Keynesianism, and Monetarism. Explain: “constant, non-inflationary growth in the money supply.” Keynesianist governmental intervention will “make the next swing in the business cycle even greater.” What was the dominant regulatory trend concering banking in the beginning of the 21st century?

Keyenesianism v. Monetarism replace the underlined with 1 term Keynes advocated government intervention in the economy and the use of (policies on public spending and taxation) and (policies on money supply and interest rates) to diminish the effects of (downturns longer than 6 months) and periods of high employment. Argued against the traditional view that free markets would automatically provide (employment of around 96%-100% of the working age population) as long as workers reduced their wage demands. Monetarists argued that Keynesian policies lead to (rising prices and decreasing purchasing power).

Keyenesianism v. Monetarism explain the parts in italics Advocated government intervention in the economy and the use of fiscal and monetary measures to diminish the effects of recessions and periods of high employment. Argued against the traditional view that free markets would automatically provide full employment as long as workers reduced their wage demands. Monetarists argued that Keynesian policies lead to inflation.

Task MK, p. 118/ Comprehension

Fill in the gaps In the long run, excess savings cause interest rates to ___ and investment to ___ again. – classical economic t. The ___ is self-regulating. –classical economic t. ___ intervention in the economy is necessary to ___ the business cycle. – Keynesianism Market forces could produce a durable equlibrium with ___ unemployment, ___ goods, ___ rates of income and investment. – Keynesianism Governments shouldn’t ___ with the economy. Their only job should be to ___ a constant non-inflationary ___ in the money supply. - Monetarism ___ the money supply will only lead to inflation. - Monetarism

Fill in the gaps In the long run, excess savings cause interest rates to fall and investment to increase again. – classical economic theory The economy is self-regulating. –classical economic t. Governmental intervention in the economy is necessary to counteract the business cycle. – Keynesianism Market forces could produce a durable equlibrium with high unemployment, fewer goods, reduced rates of income and investment. – Keynesianism Governments shouldn’t interfere with the economy. Their only job should be to ensure a constant non-inflationary growth in the money supply. - Monetarism Increasing the money supply will only lead to inflation. - Monetarism

The subprime ciris and the credit crunch MK, Unit 14

Think about these questions while watching the video What is a mortgage? Why do institutional investors buy Treasury Bills? Why did the Chairman of the Fed decrease the interest rate to 1%? What was the result? Why was there an abundance of credit in the early 21st century. What is a down payment? Why was it good to buy a house on mortgage? Why do risky investments get a higher rate of return? Why didn’t lenders mind that some homeowners defaulted on their mortgages? Prime mortgage v. sub-prime mortgage? How did mass home foreclosures affect housing prices? And homeowners still paying their mortgage?

Video – Watch this at home too!!!

What are these? Find the corresponding term in the reading. (MK, p. 75) People who are unlikely to repay their loan. – subprime borrowers /people with a high risk of default A security, that an investor would buy because (s)he wants to get a regular income from people who are paying off the mortgage on their houses. – MBS and CDO When I bought my house, it was worth $ , house prices fell, it is now worth $90.000! – the debt is greater than the value of the house

Find definitions for these terms Subprime borrowers Securitization Credit crunch Default Mortgage Collateral To write off a bad debt  When banks realize that a debt will never be repaid and stop trying to collect it