Macroeconomics Project - 6761 Words

MBA 6410 Project Part 1 The Financial Accelerator and the Flight to Quality One puzzle that has long plagued business cycle analysis is the existence of large fluctuations in aggregate economic activity that arise from what seem to be small shocks. This anomaly is what motivated the research into the financial accelerator. The financial accelerator is a possible explanation for these disproportional fluctuations. Changes in the credit market amplify and spread the initial shocks. This is explanation fits particularly well when firms and households are overextended or highly leveraged. This credit-market amplification of economic shocks is the result of reduced access to borrowed funds. Using the principal-agent approach to credit†¦show more content†¦The flight to quality also affects the real economy. Investment is very sensitive to cash flow for firms that are most likely to be credit constrained. Studies have also shown that, for firms subject to credit-market constraints, employment, RD spending, and inventory investment are affected by an economic downturn. The primary principle of the financial accelerator suggests two main ideas. First, borrowers facing relatively high agency costs in credit markets will bear the brunt of economic downturns (flight to quality). And second, reduced spending, production, and investment by borrowers with high agency costs will worsen the effects of recessionary shocks. The Financial Accelerator in a Quantitative Business Cycle Framework Economic authors as far back as Fisher and Keynes have posited that credit-market conditions play a central role in the transmission of cyclical economic fluctuations. According to this theory, deteriorating credit-market conditions – marked by increases in insolvency and bankruptcy, rising debt burdens, falling asset prices, and bank failures – are not merely a reflection of the real economy. They are, in and of themselves, major factors contributing to the depression of an economy. By adding credit-market conditions to the standard economic models, the ability of these models to explain fluctuations is strengthened. Based on the data, friction in theShow MoreRelatedProject Paper Macroeconomics1161 Words   |  5 PagesProject Paper 1. What is the gross domestic product? Gross Domestic Product, or GDP, is the total market value of final goods and services produced within an economy in a given year. It is the most common measure of an economy’s total output. 2. When prices change, how do we measure real income? When prices change we measure real income with 3. What is unemployment? Why can’t it be driven down to zero? Unemployment is when you don’t have a job. Unemployed people are those who don’t have aRead MoreThe Great Recession : Macroeconomics Project1096 Words   |  5 PagesTHE GREAT RECESSION MACROECONOMICS PROJECT Max: Hi I’m Max Lessins. 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I used data from Survey of Consumer Attitude and Behavior by University of Michigan, Survey Research Center and examine the relationship between the Index of Consumer Expectation and four categories of parameters: demographic variables, macroeconomic factors, news heard and their interactions to observe the interacting effect of demographic factors and macroeconomic factors. In Part 1, I introducedRead MoreEcon 2301 Study Guide1079 Words   |  5 PagesECON 2301: Principles of Macroeconomics Hennessy ECON 2301 Principles of Macroeconomics Time: Th 7:05 pm – 9:45 pm Synonym: 40512 Section: 023 Room: NRG2 2120 Instructor: Gregory Hennessy Office: NRG PB3 Hours: Th 6:30 pm – 7:00 pm Th 9:45 pm – 10:15 pm And by appointment Phone: Email: Course Description Principles of Macroeconomics deals with consumers as a whole, producers as a whole, the effects of government spending and taxation policies, and the effects of the monetary policy carriedRead MoreMicroeconomics1441 Words   |  6 Pagesservices. For the purpose of microeconomics, the actions of individuals, households and businesses are crucial, unlike the study of macroeconomics, which focuses on national and international economic trends. Despite the differences between the two fields, however, micro-level trends and the study of microeconomics are considered the basis of modern macroeconomics. Macroeconomics is concerned with the big picture, for example, the national economy and gross domestic product. By contrast, microeconomicsRead MoreThe Washington Consensus And Related Structural Adjustment Provisions ( Saps )1101 Words   |  5 Pageseconomic growth. Subsequent SAPs promoted a strong macroeconomic masquerade that forwent its symbiosis with microeconomi c issues. It was the growing statism in 1989 Latin America that drove this rebellious neo-liberalist direction, countering overt government control through deregulatory, penetrative strategies. Informing Williamson’s (2000) argument of rapid economic development, Naim (1993) crystallises the Consensus’ goals in Venezuela’s macroeconomic platform. GDP grew in the 1990s to a record highRead MoreThe End Of The Eastern Alliance1561 Words   |  7 Pagesclaims there are 3 major thoughts behind the so-called Washington consensus: â€Å"macroeconomic discipline, market economy and the opening of economy† (Mavroudeas, Stavros, 2007)) To begin with, the macroeconomic discipline of Washington Consensus has particular significances that differentiate it from other macroeconomic approaches. It is neither related to the Keynesian macroeconomic arrangements nor other macroeconomic strategies. In most cases, it led to â€Å"austerity budgets† and different approaches