Introduction to Economics. Linking Personal Investment with the US Economy Macroeconomics. Econ 109 Class Page. Econ Home Page: http://www.econ.ucsb.edu. Labs(sections) 12617 F 9:00-9:50 AM Jalama Lab, Phelps 1517 MCL 12625 M 2:00-2:50 PM Miramar Lab, Phelps 1526
Related searches for Introduction to Economics
Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.
Linking Personal Investment with the US Economy
Checking Instructional Computing Lab Scedules
Macroeconomics and the US Economy
5. Thursday, Oct. 10, Lecture Five: "Capital Asset Pricing Model"
Tracking asset markets and the US economy
capital asset pricing model
Growth rate of your personal wealth
Value of a share of stock
The impact of business cycles on corporate profits
O’Sullivan and Sheffrin, Ch. 20, “Measuring a Nation’s Production and
Income” emphasis: measuring the ouput of the economy, circular flow
O’Sullivan and Sheffrin, Ch. 21, “Unemployment and Inflation”
Problems O & S Text
p. 434: 1, 5, 6, 7, 8, 9,10,11
p. 450: 1, 2, 3, 4, 5, 6, 7, 8
Tuesday, Oct. 22 , 25 minute QUIZ, You will need scantron sheet
and #2 pencil.
steady at a rate of return of about 0.6 per month or 7.2% per year
does not vary much
rate of return varies a lot from month to month
range of rates of return from about plus 9% in Mar. ‘00 to minus 13% in Aug ‘98
can turn negative: 29 months out of 72UC Funds: Equity Vs. Insurance
Mean Returns & Standard Deviations Std. Dev.
This frontier shows the efficient (best)
options for investing, the first step
of the economic paradigm
Slope is the second step of the paradigm, determining values: Market Price of Risk: 0.1% return per month for every 1% of variability per month
Assumption: Mean Return is Good, Risk is Bad: U =U(M,R)
Iso - Preference Curves
Prefer B to A; Prefer B to C
Investor A: very risk averse
Investor B: not very risk averse
Growth Rate 13% Std. Dev.
Rate of Growth of Personal Wealth Std. Dev.
in wealth, w
rate of growth of wealth, w/w rate of return, r + savings/wealth
w/w r + s/w
Younger Years Std. Dev.
income & savings are lower
wealth is smaller
ratio of savings to wealth may be high
savings is most important, rate of return less so
income of $60,000
savings of $6,000
wealth of $50,000
ratio of savings to wealth of 0.12
ratio of savings to wealth falls
rate of return on wealth becomes more important
income of $100,000
savings of $20,000
wealth of $500,000
ratio of savings to wealth of 0.04Relative Importance of Savings
rate of growth of wealth, Std. Dev. w/w
w/w r + s/w
rate of return
on wealth, r
Buy and Hold
Step 1: Save
Step 2: Diversify, i.e keep a cash
reserve, buy a house, hold some treasury bonds,invest in
stock index fund with IRA or
Using the Economic Paradigm
to maximize return for a given
Your Stocks Std. Dev.
Percentage Changes in IBM Versus the Dow Std. Dev.
http://www.globalexposure.com/ Std. Dev.
Last Ten Years
Income-Expense Statement for a Business Firm
(net revenue, net earnings)
Your Stocks Std. Dev.
Index of Leading Economic Indicators
Gross Domestic Product
Index of Leading Indicators Std. Dev.
capital asset pricing model Std. Dev.
asset specific risk
Dow Jones Industrials
net earnings per share
corporate profits after taxes
index of leading indicatorsSummary-Vocabulary-Concepts