Auction-market credits' prices (i.e. interest rates) are determined in a centralised marketplace, e.g. the global bonds market where prices are determined as if there was an auctioneer who sets price to balance demand and supply. On the other hand, the customer-market credits' prices are set in an over-the-counter manner, i.e. prices or interest rates are set by the two parties involved (e.g. between the bank manager and the customer who applies for loans).
Anonymous
said...
9:06 pm
Thanks ka
Anonymous
said...
10:18 am
dear ajarn
I suspect about the problem set that the effect of decreasing in i and incresing in rho causing recession or decreasing in y.
after i check the direction of effect, i found that in credit market y should increase because of lower demand for credit due to higher rate of loan and lower rate of bond while the direction of y in money market is decreasing which causes recession
therefore, they are contradict result in 2 market. i wanna know that i should consider both of markets or just consider the one which has the correct result in the situation or say that money takes role in the economy.
The first thing to do would be to work out what shocks are hitting the economy, and how they lead to adjustments in interest rates i and rho in the way described in the question. In other words, how does the subprime crisis change the supple/demand conditions in the two asset markets?
Once you know this, you would be able to track how the CC/LM curves shift in response, and then determine the impact on y (after all markets adjust to the new equilibrium).
In short, don't confuse 'movements along the curve' with 'curve shifts'.
5 comments:
Dear ajarn
I have some question about differences between auction-market credit and customer-market credit could you please give me an example?
Auction-market credits' prices (i.e. interest rates) are determined in a centralised marketplace, e.g. the global bonds market where prices are determined as if there was an auctioneer who sets price to balance demand and supply. On the other hand, the customer-market credits' prices are set in an over-the-counter manner, i.e. prices or interest rates are set by the two parties involved (e.g. between the bank manager and the customer who applies for loans).
Thanks ka
dear ajarn
I suspect about the problem set that the effect of decreasing in i and incresing in rho causing recession or decreasing in y.
after i check the direction of effect, i found that in credit market y should increase because of lower demand for credit due to higher rate of loan and lower rate of bond while the direction of y in money market is decreasing which causes recession
therefore, they are contradict result in 2 market. i wanna know that i should consider both of markets or just consider the one which has the correct result in the situation or say that money takes role in the economy.
thx for ur ans. na ka
The first thing to do would be to work out what shocks are hitting the economy, and how they lead to adjustments in interest rates i and rho in the way described in the question. In other words, how does the subprime crisis change the supple/demand conditions in the two asset markets?
Once you know this, you would be able to track how the CC/LM curves shift in response, and then determine the impact on y (after all markets adjust to the new equilibrium).
In short, don't confuse 'movements along the curve' with 'curve shifts'.
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