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Role Of The Forces Of Supply And Demand Essay Help Service

We always see the  price of Gas Fluctuates from time to time. Write  2 pages explaining the role of the forces of supply and demand in this fluctuations. Give examples and be specific.

Technical Communication assignment common app essay help: common app essay help


EN360 Technical Communication

Directions: Be sure to save an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English, spelling and grammar. Sources must be cited in APA format. Your response should be four (4) double-spaced pages; refer to the “Assignment Format” page located on the Course Home page for specific format requirements.


Part A: Written and Oral Communication Skills


Locate a website for an organization that hires graduates in your major. Besides technical skills, what writing and communication skills does this organization seek in a job candidate? Write a one-page essay on what they say directly on this subject. Include reasons why each skill is important, and any additional written/spoken skills that you believe would give a candidate a competitive advantage.


Part B: Effective Writing Teams


a. What types of projects require collaboration?


b. What are four primary attributes of an effective writing team? Provide an example for each.


Part C: Internet Source Distortion/Misrepresentation


From media, personal experience, or the Internet, identify an example of each of the following sources of distortion (faulty causal and/or statistical inference) for the following:


a. A study with questionable sponsorship or motives

b. Reliance on insufficient evidence/hasty generalization

c. Unbalanced or biased presentation

d. Unexamined assumptions

e. Faulty causal reasoning



Part D: Checklist for Style – Local Newspaper


Using the “Checklist for Style” on the following page (also found in Chapter 11 of your textbook), rewrite the following letter to a local newspaper.



In the absence of definitive studies regarding the optimum length of the school day, I can only state my personal opinion based upon observations based by me and upon teacher observations that have been conveyed to me. Considering the length of the present school day, it is my opinion that the day is excessive length-wise for most elementary pupils, certainly for almost all of the primary children.

To find my answer to the problem requires consideration of two ways in which the problem may be viewed. One way focuses upon the needs of the children, while the other focuses upon logistics, transportation, scheduling, and other limits imposed by the educational system. If it is necessary to prioritize these two ideas, it would seem reasonable to give the first consideration to the primary reason for the very existence of the system, i.e., to meet the educational needs of the children the system is trying to serve.




Grading Rubric


Please refer to the rubric on the next page for the grading criteria for this assignment.





This is the end of Assignment 4.






CATEGORYExemplarySatisfactoryUnsatisfactoryUnacceptable20 points15 points10 points5 points

The student describes 4 or

more well-written, currently

marketable skills with

reasons why each skill is


The student describes 4 or

more well-written, currently

marketable skills with fewer

than 4 reasons why the skills

are important.

The student describes 4

currently marketable skills,

but does not provide

support for his or her


The student describes

fewer than 4 currently

marketable skills, and does

not provide support for his

or her choices.

20 points15 points10 points5 points

The student describes 4 or

more types of projects that

require collaboration + 4

attributes of an effective

writing team with examples

of each.

The student describes 2 to 3

types of projects that

require collaboration + 4

attributes of an effective

writing team with only

partial examples.

The student describes only

1 type of project that

requires collaboration + 4 or

fewer attributes of an

effective writing team with

only partial examples.

The student fails to

describe any projects that

require collaboration +

provides inappropriate

supporting attributes of an

effective writing team.

20 points15 points10 points5 points

The student provides 5 well-

written/evaluated examples –

one for each of the 5 sources

of distortion.

The student provides 5


written/evaluated examples

– one for each of the 5

sources of distortion.

The student provides

passably written/evaluated

examples that may or may

not cover each of the 5

sources of distortion.

The student provides

poorly written/evaluated

examples that may or may

not cover each of the 5

sources of distortion.

15 points 12 points 8 points 5 points

The student’s new iteration

is less than half the length of

the original and is free of all

the errors outlined in the

“Checklist for Style”.

The student’s new iteration

is less than half the length of

the original and includes no

more than 3 of the errors

outlined in the “Checklist for


The student’s new iteration

is less than or equal to half

the length of the original

and includes no more than 5

of the errors outlined in the

“Checklist for Style”.

The student’s new

iteration is more than than

half the length of the

original and includes more

than 5 of the errors

outlined in the “Checklist

for Style”.

10 points 8 points 5 points 2 points

Student makes no errors in

grammar or spelling that

distract the reader from the


Student makes 1-2 errors in

grammar or spelling that

distract the reader from the


Student makes 3-4 errors in

grammar or spelling that

distract the reader from the


Student makes more than

4 errors in grammar or

spelling that distract the

reader from the content.

15 points 12 points 8 points 5 points

The paper is written in

proper format. All sources

used for quotes and facts are

credible and cited correctly.

Excellent organization,

including a variety of

thoughtful transitions.

The paper is written in

proper format with only 1-2

errors. All sources used for

quotes and facts are credible

and most are cited correctly.

Adequate organization

includes a variety of

appropriate transitions.

The paper is written in

proper format with only 3-5

errors. Most sources used

for quotes and facts are

credible and cited correctly.

Essay is poorly organized,

but may include a few

effective transitions.

The paper is not written in

proper format. Many

sources used for quotes

and facts are less than

credible (suspect) and/or

are not cited correctly.

Essay is disorganized and

does not include effective


Format – APA

Format, Citations,


Transitions (15


Mechanics –



Spelling (10 Points)

Part A: Written and

Oral Communication

Skills (20 points)


Part C: Internet



sentation (20 points)

Part D: Checklist for

Style – Local

Newspaper (15


Part B: Effective

Writing Teams (20


Minimum wage in different states essay help tips

Write between 2.5 pages about the laws of the minimum wage in different states and the top and bottom states in MW. also mention both advantages and disadvantages of minimum wage, and are you in favor of raising the minimum wage or not? and Why ?

Rating Transitions and Serial Dependence compare and contrast essay help: compare and contrast essay help

Rating Transitions and Serial Dependence Exhibit 8 depicts historical average one-year rating transition rates for senior unsecured obligations of cor- porate bond issuers. The table shows the average one-year transition rates for annual cohorts formed between 1970 and 2001, where each annual cohort is weighted by its size (the number of issuers).

Exhibit 8 reveals some important features of the behavior of ratings and Moody’s rating process over one-year horizons. Higher ratings have generally been less likely than lower ratings to be revised over a one- year period. For example, the inertial frequency for Aaa-rated issuers, was 89% — i.e., the ratings of 89% of Aaa-rated issuers did not change within one year. By contrast, an issuer that began the year within the broad B rating category ended the year with that same broad rating only 78% of the time. We also note that, for issuers holding ratings in the middle of the rating scale, the likelihood of a rating upgrade and a rating down- grade is roughly symmetrical. Of course, Aaa-rated issuers can only migrate down the rating scale (or exit the pool via default or withdrawn ratings (WR)), while Caa-rated issuers can only migrate up the rating scale (or exit the pool via default or a withdrawn rating).

Exhibit 8 presents a so-called “unconditional” rating transition matrix, treating all issuers with a specific rating the same, regardless of how they came to have that rating (either through their initial rating assign- ments, downgrades or upgrades).

Exhibit 7

Average Debt Prices As a Percent of Face Value One Month After Default, 1982-2001 Senority Recovery

Sr. Secured Bank Loans 64% Sr. Unsecured Bank Loans 48% Equipment Trust Certficates 66% Sr. Secured Bonds 53% Sr. Unsecured Bonds 40% Sr. Subordinated Bonds 32% Subordinated Bonds 31% Jr. Subordinated Bonds 22%

Exhibit 8

One-Year Average Rating Transition Matrix, 1970-2001 Rating to: Aaa Aa A Baa Ba B Caa-C Default WR

Rating from:

Aaa 89.09% 7.15% 0.79% 0.00% 0.02% 0.00% 0.00% 0.00% 2.94% Aa 1.17% 88.00% 7.44% 0.27% 0.08% 0.01% 0.00% 0.02% 3.01% A 0.05% 2.41% 89.01% 4.68% 0.49% 0.12% 0.01% 0.01% 3.21% Baa 0.05% 0.25% 5.20% 84.55% 4.51% 0.69% 0.09% 0.15% 4.51% Ba 0.02% 0.04% 0.47% 5.17% 79.35% 6.23% 0.42% 1.19% 7.11% B 0.01% 0.02% 0.13% 0.38% 6.24% 77.82% 2.40% 6.34% 6.67% Caa-C 0.00% 0.00% 0.00% 0.57% 1.47% 3.81% 62.90% 23.69% 7.56%

7. See Default & Recovery Rates of Corporate Bond Issuers, February 2002, and LossCalc: Moody’s Model for Predicting Loss Given Default, February 2002, for a full discussion.

Exhibit 9

One-Year Conditional Rating Transitions, 1984-2001 One-Year Conditional Default Rates, 1984-2001 Following These Rating Actions During Following These Rating Actions During

Rating Changes Previous Year Initial Rating Previous Year Over One Year Upgraded Unchanged Downgraded Level Upgraded Unchanged Downgraded

Upgraded 16.17% 8.83% 7.46% Ba1 0.00% 0.87% 1.09% Unchanged 76.23% 76.73% 66.43% Ba2 0.35% 0.60% 1.79% Downgraded 6.86% 13.34% 20.33% Ba3 2.31% 2.59% 3.53% Default 0.74% 1.10% 5.78% B1 1.86% 3.97% 3.96%

100.00% 100.00% 100.00% B2 0.85% 5.25% 10.47% B3 11.70% 8.41% 23.00% Caa-C 11.86% 9.92% 32.38%

Moody’s Special Comment 11

Exhibit 9 reveals that, in fact, historical rating transition frequencies vary sharply, depending on whether a company’s rating was downgraded, unchanged, or upgraded in the previous year. Companies that have recently been upgraded are roughly twice as likely to be upgraded again during the following year, as com- pared with companies that have recently been downgraded or have experienced no recent rating change at all. Similarly, over the following year, companies that have recently been downgraded are: (a) almost one and one-half times more likely to be downgraded and five times more likely to default than companies that expe- rienced no prior rating change; and (b) three times more likely to be downgraded and nearly eight times more likely to default than companies that have recently been upgraded.

These differences in rating transitions for issuers that had been previously downgraded or upgraded should be considered in a broader context. Although they appear to be substantial in the short run, the dif- ferences are likely to be less pronounced over longer horizons. Moreover, the differences are likely to be considerably smaller for issuers that are assigned stable outlooks following a rating change. On the other hand, these differences are likely to be more pronounced for issuers who either (1) remain on review for downgrade or are assigned a negative outlook following a rating downgrade, or (2) remain on review for upgrade or are assigned a positive outlook following a rating upgrade.

Exhibit 9 also reveals that conditional one-year default rates by broad rating category may vary, depend- ing on whether or not an issuer experienced a rating change during the prior year. For some rating levels, the default rate for an issuer that experienced a downgrade during the prior year is almost double that for issuers holding the same rating but whose ratings were upgraded. Small sample sizes for upgraded B2, B3 and Caa-C rated issuers contribute to the anomalous results shown for these categories.

The ratings momentum demonstrated in Exhibit 9 is a natural consequence of our rating system-man- agement practices. These do two things in particular: (a) limit rating changes when there are substantial pos- sibilities of near-term rating reversals; and (b) dampen potential ratings volatility by incrementally adjusting ratings in response to changes in credit fundamentals, and by using other signals in the rating system to indi- cate likely additional rating changes (as described earlier). We will publish follow-up studies of these effects as we gather further information.

Conclusion In summary, credit ratings powerfully discriminate among relative long-term risks. They target multiple horizons, rather than a single, defined investment horizon. Moreover, they do not target constant, absolute expected credit-loss rates by rating category. Investors who wish to make the best use of credit ratings should understand these properties of the ratings.

Moody’s believes that our ratings system-management practices, as set forth above, are desired by both issuers and investors. Issuers want stability in ratings and the opportunity to make changes in their financial condition, if possible, to avoid changes in ratings. Investors want ample notice of potential rating changes, in part because of investment requirements and restrictions that may be placed on them by owners of funds or their representatives such as endowments and pension fund sponsors, and especially with respect to rating changes resulting in changes in indices against which the investors may be measured.

Moody’s has carefully considered whether our ratings system-management practices diminish the pri- mary social value or public good that rating agencies can produce, which is greater efficiency in capital mar- kets. We believe that ratings momentum, as we have described it, does not detract from capital market efficiency or permit transfer of wealth between sophisticated and unsophisticated investors.

In general, Moody’s does not believe that the information conveyed by rating outlooks, the Watchlist, or ratings themselves benefits one class of investors over another. Moody’s disseminates this information publicly and believes that market participants understand the information equally.

Moody’s also believes that our ratings system management does not benefit issuers or investment and commercial banks, which may have extended credit to issuers or have opportunities for important fees, over investors with existing or potential positions. Moody’s buy-side meetings have strongly confirmed that investors dislike downgrades as much as issuers, and probably more than investment bankers, who have many opportunities for additional fees, including opportunities from downgrades.

Moody’s also notes that corporate bonds are generally held by financial institutions or in investment vehi- cles — pension fund investments or mutual funds advised by institutional investors — rather than by individu- als, and believes that institutional investors are well aware of the attributes of Moody’s rating system.8 In addition, common market wisdom is that prices of corporate bonds generally adjust, based on changes in rating

12 Moody’s Special Comment

outlooks or the Watchlist, as well as on changes in the ratings themselves. Moody’s has not previously main- tained a database of our rating outlooks, but will do so in the future and will carefully monitor and make public an analysis of bond price changes following changes in rating outlooks, the Watchlist, and ratings. Finally, this Special Comment should better inform issuers, investors, and owners of funds or their representatives about Moody’s ratings system-management practices so that they can make any adjustments they desire in their uses of Moody’s rating system.

In order to promote a clearer understanding of Moody’s management of the rating system and the sig- nals conveyed by bond ratings, as well as other signals-rating outlooks and the Watchlist-of the rating sys- tem, we have detailed in this paper how Moody’s conducts and will conduct its corporate bond-rating activities, the intended meaning of Moody’s ratings, and their empirical attributes. Our dialog with the mar- ket suggests that improved transparency of our behavior and of the meaning and attributes of ratings may help users better utilize them in their financing, investment, and related decisions. Moody’s bond ratings are not high-frequency sources of information. Instead, they are based on careful, deliberate analysis and will sometimes appear to “lag the market.”

Nevertheless, we believe that a rating system expressing independent credit opinions derived from fun- damental analysis provides a valuable means of overcoming the asymmetry of information between borrow- ers and lenders in the global capital markets and contributes to investor protection and market efficiency. Our objective is to continue to manage the rating system in a way that best meets the needs of market partic- ipants and contributes to market efficiency.

Bibliography — Moody’s Special Comments 1. Default & Recovery Rates of Corporate Bond Issuers: A Statistical Review of Moody’s Ratings

Performance 1970-2001, February 2002. 2. Moody’s Rating Migration and Credit Quality Correlation, 1920-1996, July 1997. 3. Predicting Default Rates: A Forecasting Model for Moody’s Issuer-Based Default Rates, August 1999. 4. Debt Recoveries for Corporate Bankruptcies, June 1999. 5. An Historical Analysis of Moody’s Watchlists, October 1998. 6. Testing for Rating Consistency in Annual Default Rates, February 2001.

8. Moody’s will continue to monitor direct individual participation in the corporate bond market and notes that during 2001 there was significant issuance of structured notes for retail customers based on corporate bonds.

Moody’s Special Comment 13

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16 Moody’s Special Comment

To order reprints of this report (100 copies minimum), please call 1.212.553.1658. Report Number: 74982

Default Severity And Recovery Rates homework essay help

Default Severity And Recovery Rates As statements about expected credit loss, Moody’s ratings incorporate assessments of both the likelihood of default and the severity of loss, given default. While the likelihood of default is roughly the same for various debt obligations of the same obligor, these obligations are readily differentiated by the severity of the loss that may be expected in the event of default (as shown in Exhibit 7). For this reason, when rating debt obligations, Moody’s pays close attention to the effective security and seniority of the instrument — two of the most important determinants of the post-default recovery that investors may realize. Moody’s has also extensively

Exhibit 5

1-Year & 5-Year Default Cumulative Accuracy Profile

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

0% 0%


20% 30% 40% 50% 60% 70% 80% 90% 100%

cumulative share of issuers

cu m

ul at

iv e

sh ar

e of

d ef

au lte

d is

su er


1 year horizon 5-year horizon Caa-C B3 B2 B1 Ba3 Ba2 Ba1 Baa3 Baa2 Baa1 A3 A2 A1 Aa3 Aa2 Aa1 Aaa


Exhibit 6

Five-Year Cumulative Default Rates for Annual Cohorts formed 1970 through 1997 Mean Standard Deviation Minimum Maximum

Aaa 0.1% 0.6% 0.0% 2.5% Aa 0.3% 0.5% 0.0% 1.9% A 0.5% 0.7% 0.0% 2.6% Baa 1.9% 1.4% 0.0% 5.4% Ba 11.5% 7.4% 2.5% 24.0% B 30.8% 12.2% 3.6% 44.6% Caa-C 56.6% 25.1% 0.0% 100.0%

10 Moody’s Special Comment

analyzed the cyclical variation in recovery rates in defaulted bonds, and has found that average recovery rates are lower in periods of high relative default rates, and higher in periods of low relative default rates. 7

Variability of Default Rates by Rating Category research essay help

Variability of Default Rates by Rating Category Moody’s ratings measure relative risk over a continuous horizon and do not target specific expected default probabilities over specific horizons. Realized default frequencies are, in fact, quite variable over short periods of time. For example, as indicated in Exhibit 6, the standard deviation of five-year cumulative default rates is almost as large — and in Aaa through A categories, larger — than the mean five-year default rate for those same rating categories.

Exhibit 6 also shows that there is greater dispersion of default outcomes at lower rating categories. This greater dispersion is the result of two contributing factors. Economic events have a greater impact on lower- rated firms due to their greater vulnerability to shocks. Also, Moody’s typically adjusts ratings modestly — not sharply — through the credit cycle because the amplitude and timing of cycles are inherently hard to predict.

The reason why there is dispersion in actual default rates for annual cohorts is that Moody’s does not endeavor to maintain constant ex-post default rates in various credit cycles. Given that Moody’s ratings tar- get multiple horizons, even with perfect information about the credit cycle, it would be difficult to prescribe the “correct” amount by which ratings should adjust in response to cyclical variations while maintaining constant ex-post default rates for each horizon.

Some investors, however, are very concerned with the expected absolute default rate associated with rat- ings over short horizons—particularly in the high-yield sector. To meet these investors’ needs, Moody’s pro- vides a model-based, monthly forecast of the one-year-ahead, speculative-grade default rate. This model, and models like it, can be used by investors to translate Moody’s “through-the-cycle” relative rating system to a “point-in-time” cardinal rating system.

Empirical Results From Moody’s Ratings buy argumentative essay help: buy argumentative essay help

Empirical Results From Moody’s Ratings and Ratings Process Moody’s bond ratings are predictions of relative creditworthiness, which can be defined as a relative expected- loss rate. Expected loss rates, in turn, are the product of expected default rates and expected loss-severity rates in the event of default. Our annual reviews of corporate bond defaults and recoveries on defaulted bonds pro- vide an after-the-fact analysis of our ratings and summarize the empirical outcomes of our rating definitions and our rating system-management practices. These findings are supplemented with a variety of periodic research reports on rating transitions, default rate forecasts, tests for rating consistency, and loss severity in the event of default. (A bibliography of this research appears at the end of this document.)

Over 3,500 of the more than 16,000 corporate issuers that Moody’s has rated since 1920 defaulted at some point in time. Our default research illustrates the strong historical relationship between Moody’s ratings and subsequent average default and loss experience at different investment horizons. Most of our empirical analysis of the broad ratings categories (Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C) has focused on the last three decades. However, when we analyze the performance of our more refined ratings (using the 1,2,3 modifiers), we consider data only from 1983 to the present, since modifiers were first introduced in April 1982.

5. Again, we do not allow potential, causal impacts of a rating action to restrict our ratings. 6. See Moody’s Special Comment An Historical Analysis of Moody’s Watchlist, October 1998.

Moody’s Special Comment 7

Cumulative Default Rates By Rating Categories Exhibit 1 presents the standard measure of the relationship between ratings and default risk, as expressed by differences in long-term cumulative default rates across rating categories. Over investment horizons as long as 20 years, Moody’s ratings have proven a reliable guide to differences in default risks.

As suggested by Exhibit 1, Moody’s bond ratings are not specific to any particular investment horizon. Rather, they provide signals about relative default risk over multiple investment horizons. Perhaps this can be best understood by considering the way in which we calculate average cumulative default rates. As indi- cated in Exhibit 2, an average cumulative default rate incorporates the default experience of many different annual cohorts (i.e., groups of issuers that began the year of the cohort’s formation carrying the same rating).

Over short periods of time, the default experience of similarly rated cohorts from different formation years often diverge. For example, while the 1979 Baa-rated cohort experienced a higher cumulative default rate than did the 1972 cohort for most of its first fifteen years, their cumulative default experiences con- verged in later years.

Long-term cumulative default rates summarize average default experience as a function of ratings that were assigned to issuers many years before default. In practice, Moody’s monitors the evolution of issuers’ creditworthiness over time and lowers or raises the ratings of issuers that experience substantial deteriora- tion or improvement, respectively, in credit standings.

Exhibit 1

Cumulative Default Rates by Rating Categories 1970-2001











Aaa Aa A Baa Ba B Caa-C

Year 5 Year 10 Year 15 Year 20

Exhibit 2

Multi-Year Default Rates for Baa-Rated Issuers










1 3 5 7 9 11 13 15 17 19 21 23 Years Out

1970-01 Baa Weighted Average 1972 Baa Cohort 1979 Baa Cohort

8 Moody’s Special Comment

Ratings Prior To Default

As indicated in Exhibit 3, firms that do eventually default typically have very low ratings long before the default event. A full five years before the event, the typical defaulting firm is already rated speculative grade at Ba3, which is four broad rating categories and twelve rating “notches” (counting the 1, 2, 3 broad rating modifiers) below the highest rating on the scale, Aaa. Within three years of default, the typical firm’s rating is B1, and then its rating continues to fall until it is rated at Caa2 at default.

The distribution of ratings one year prior to default, shown in Exhibit 4, indicates a fairly tight grouping around the low speculative grade level. The median rating one year before default is B2 — one-half of all defaulting issuers had ratings equal to or below this category.

Exhibit 5 provides another perspective on the power with which ratings discriminate defaulters from non-defaulters. As indicated, over 90% of all rated companies that have defaulted since 1983 were rated Ba3 or lower at the beginning of the year in which they defaulted, and almost 80% were rated Ba3 or lower at the beginning of the fifth year before they defaulted.

Exhibit 3

Mean and Median Rating Prior to Default, 1983 – 2001

Note: “Average” is calculated by associating an integer with the rating; eg: Aaa = 1; Aa1 = 2, etc. and averaging the integers.

60 56 52 48 44 40 36 32 28 24 20 16 12 8 4 0 Months Before Default

Average Median









Exhibit 4

Distribution of Ratings One Year Prior to Default, 1983 – 2001







Aa3 A1 A2 A3 Baa1 Baa2 Baa3 Ba1 Ba2 Ba3 B1 B2 B3 Caa1 Caa2 Caa3 Ca C

Moody’s Special Comment 9

Moody’s publishes rating methodologies argumentative essay help online

Moody’s publishes rating methodologies for nearly all rated sectors. See Moody’s Rating Methodology Handbook, February 2001. 4. As previously stated, when potential scenarios are for some reason reduced to a highly restricted set of outcomes—e.g. that either a company will fail or will survive with investment-grade characteristics—we choose a rating consistent with only one of the outcomes, rather than assign an average of the ratings. This is particularly true in merger/acquisition situations and when “rating triggers” might force an outcome inconsistent with the average rating.

6 Moody’s Special Comment

Moreover, the potentially self-fulfilling nature of ratings creates a strong bias against “false” negative predictions (compared with other credit measurement systems) because ratings themselves can be causal, either because of market reactions to rating changes or because of the use of ratings in agreements between the issuer and investors or other parties (rating triggers).5 This is not because rating agencies perform their roles improperly or differently than in the past; it is in fact the opposite — that their track record and objec- tivity causes markets to react to rating changes to the point where additional signals (rating outlooks and the Watchlist) and careful deliberation are demanded.

A rating outlook, expressed as positive, stable, or negative, provides an opinion regarding the likely direction of any medium-term rating actions, typically based on an 18-month horizon. Nearly all rated investment-grade companies have a rating outlook assigned to them, and a change in rating outlook can be determined by a formal rating committee or by approval of the lead analyst and a Managing Director. His- torically, Moody’s has not systematically tracked the relationship between rating outlooks and subsequent rating changes, but we have heard significant market interest in our doing so. Moody’s plans to respond to this interest and will publish such findings in the future.

If changing circumstances contradict the assumptions or data supporting the current rating, we will place the rating under review (on the Watchlist). The Watchlist highlights issuers (or debt obligations) whose rating is formally on review for possible upgrade, downgrade, or direction uncertain. At the conclu- sion of a review, typically within 90 days of placement on the Watchlist, we will determine whether the risks and expected loss are still consistent with the assigned rating. Although the Watchlist is not a guarantee or commitment to change ratings over a certain time horizon — or even to change them at all — historically, between 66% and 76% of all ratings have been changed in the same direction (and rarely in the opposite direction) as indicated by their Watchlist review. 6

A formal rating committee is normally required to place an issuer on the Watchlist, and a separate rating committee is needed to take the issuer off the Watchlist, either by changing or confirming the current rat- ing. In most cases, members of the rating committee will meet with a firm’s management after it is placed on the Watchlist. The information gained at this meeting can form the basis for the confirmation of the rating or a rating change.

These practices impart a deliberate, and often serial, behavior to rating changes, and they sometimes limit the information content of individual rating changes. Our discussions with users of ratings, however, indicate that, despite criticism about rating timeliness, investors and other users prefer the system as it cur- rently operates. The market does not look to ratings primarily as buy/sell signals, and does not want ratings to be pro-cyclical or add to market volatility. Our challenge is to increase the information content of ratings without adding unnecessarily to market volatility.

Understanding The Ratings System popular mba argumentative essay help: popular mba argumentative essay help

Understanding The Ratings System The value of a credit rating system is maximized through wide coverage of issuers and wide dissemination of ratings. Just as important, however, is that users of bond ratings understand the non-rating signals that have become standard features of the rating system. Non-rating signals, such as rating outlooks and the Watchlist, have evolved to meet investors’ needs for an indication of the likely direction of future rating actions.

Moody’s has developed processes and procedures that insure that our opinions reflect relative funda- mental credit risk. While financial data (and markets) can, and do, change frequently, the prevailing view is that creditworthiness, particularly for higher-rated firms, is an intrinsic feature of an issuer that generally takes time to change. Most market participants would argue (rightly or wrongly) that a rating reversal — an upgrade followed by a downgrade, or a downgrade followed by an upgrade — over, for example, a three- month period — would be evidence of a rating “mistake.”

Confidential Non-Public Information college essay help near me: college essay help near me

Confidential Non-Public Information: Moody’s will use confidential non-public information that issuers provide to Moody’s only for the purpose of assigning ratings. Moody’s will not, without the permission of the issuer, disclose the information in the press release or other research reports published in connection with the rating, or in discussions between Moody’s analysts and investors, or other issuers. Such information may, however, be disclosed as a result of legal processes. Moody’s believes that the efficiency of capital markets is best served by permitting issuers to disclose to rating agencies material non-public information for use solely in rating decisions. If public policy favors broader disclosure of such non-public information that could reasonably be expected to have an effect on rating decisions, Moody’s believes that authorities would require that issuers make public disclosure of such information, rather than utilizing rating agencies as the vehicle for such disclosure.

Moody’s Corporate Bond Ratings Moody’s ratings are opinions of future relative creditworthiness, derived by fundamental credit analysis and expressed through the familiar Aaa-C symbol system. Fundamental credit analysis incorporates an evalua- tion of franchise value, financial statement analysis, and management quality. It seeks to predict the credit performance of bonds, other financial instruments, or firms across a range of plausible economic scenarios, some of which will include credit stress.

Credit ratings provide objective, consistent and simple measures of creditworthiness. As such, they improve the flow of information between institutional borrowers (issuers) and lenders (investors). Generally, institutional borrowers know more about their companies than do their lenders. Moody’s helps to reduce this asymmetry of information. Ratings, thereby, increase the potential market for issuers’ obligations. Rat- ings also reduce investors’ costs of gathering, analyzing, and monitoring the financial positions of borrowers because rating agencies provide scale economies and specialization in performing these functions. Accord- ingly, credit ratings, in aggregate, lower the costs of borrowing and lending and increase overall market effi- ciency for both issuers and investors.

2. Moody’s cannot, however, force an issuer to disclose the nature or extent of its use of rating triggers. If an issuer determines that public disclosure pursuant to securities laws is not required, and does not otherwise reply to Moody’s inquiries about its use of rating triggers, neither Moody’s nor investors will have a complete view of the issuer’s credit profile.

Moody’s Special Comment 5

Beyond this core function, ratings have also come to serve many other uses. Savers, and the institutions that intermediate savings, rely on ratings to minimize costs associated with monitoring the risks taken by investment managers and as benchmarks for determining investment manager performance. Investors and counterparties embed ratings as triggers into private contracts in order to protect themselves from potential deterioration in the creditworthiness of an obligor’s financial position. Regulators and lawmakers utilize rat- ings to measure and limit risks taken by regulated entities, including capital requirements to protect bank depositors, insurance beneficiaries, and taxpayers from unnecessary costs. Many of these uses are predicated on ratings behaving according to certain well-established patterns.

In order to promote a clearer understanding of the signals conveyed by ratings — as well as by rating outlooks and the Watchlist, which are included in Moody’s rating system — we explain in the following sec- tions the intended meaning of Moody’s corporate bond ratings and their empirical behavior. Our dialog with the market suggests that improved transparency around the formation and meaning of ratings may help users better utilize them in their investment decisions. The following sections describe Moody’s view of the usefulness of ratings, sets forth a summary of the established patterns of the behavior of our ratings, and dis- cusses some of the issues raised by investors and others in the wake of recent credit defaults by large issuers. We also comment on how market participants expect our ratings to behave in view of the multiple uses of ratings that are common in debt markets.

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Ratings as forecasts with uncertainty: Moody’s rating is an opinion forecast of an issuer’s future relative creditworthiness. Moody’s acknowledges that, as in the case of any forecast, there can be a range of actual outcomes and a range of uncertainty about the forecast. If Moody’s perceives that an issuer faces a highly restricted set of outcomes that are quite different from each other (as may occur in mergers, or for issuers with very substantial conditional obligations), Moody’s will normally assign a rating based on its perception of the most likely outcome; in such cases, Moody’s will not normally assign a rating based simply on a probability weighting of the outcomes. Subject to respecting the confidentiality of non-public information disclosed to us by the issuer or his agents, Moody’s will endeavor to explain the rationale for such ratings as clearly as possible. In cases where there may be important changes in rating levels based on contingent outcomes, Moody’s will further endeavor to explain the degree of possible future rating changes and will include some indication of how likely it views each outcome to be. This is a new policy for Moody’s, and reflects comments made by investors, who would like greater transparency in this area.

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indications of potential changes in credit quality.

Moody’s Special Comment 3

• For some investors, ratings are important as one credit diagnostic—the long-term fundamental credit perspective—of a broader, more holistic portfolio credit-management process.

• Some investors (especially total-return investors) care about ratings less as real-time inputs to buy/sell decisions and more because of internal or third-party-imposed portfolio guidelines; as a result, they highly value rating stability to avoid unexpected portfolio revisions.

• Because rating agency behavior is believed to influence security prices, investors exert considerable effort to anticipate rating changes.

Accordingly, we have confirmed that market participants use bond ratings for both long-term funda- mental credit analysis and for portfolio governance. Moody’s traditional management of the rating system has facilitated these uses for multiple purposes. Yet, these multiple uses have important ramifications for the behavior and performance of ratings, and both Moody’s and users of Moody’s ratings must consider how these uses might affect the utility of ratings for purposes other than those intended.

Our goal is to be as transparent as possible about the intended meaning of our ratings in order to minimize any misunderstanding about what we do, so that our behavior can promote efficiency in debt capital markets.

How Moody’s Conducts Its Corporate Bond-Rating Activities There are several core principles that set forth how Moody’s acts which should be well-understood by all market participants.

1. Effect of commercial relationship: the level of rating that Moody’s assigns to an issuer is affected neither by the existence of a commercial relationship between Moody’s and the issuer, nor by the nature of that commercial relationship.

2. Judicious rating process: because of the potential importance of the rating to the issuer and investor, Moody’s carefully and deliberately considers all information relevant to the issuer’s rating that the issuer and its advisors present to us. Moody’s understands that its ratings can potentially become self-fulfilling forecasts. In the case of upgrades, that can mean greater capital market access and interest cost savings for issuers, and improved securities prices for investors. In the case of downgrades, it can mean higher capital costs for issuers, and portfolio turnover and losses for investors; most dramatically, however, it can terminate an issuer’s access to capital, possibly even leading to default. Especially in the case of downgrades, the potentially self-fulfilling nature of ratings requires that Moody’s particularly endeavor to avoid “false” negative predictions. Moody’s recognizes the views of investors, issuers and intermediaries that we should be cognizant of the potentially damaging consequences of our decisions. Accordingly, while Moody’s will not forbear in reaching and disclosing rating opinions, we will conduct the ratings process judiciously, and may tolerate some delays in the ratings process to make sure that relevant information is considered. Nevertheless, if an issuer proposes to bring securities to market before a rating process would normally be concluded, Moody’s may accelerate provision of a rating based on the best information that Moody’s has at the time.

3. Effect of a rating action on an issuer: Moody’s will proceed with issuing or changing a rating, notwithstanding the effect of the rating action on the issuer, including the possible effect on the issuer’s market access or conditional obligations. The level of rating that Moody’s assigns to an issuer that might experience potential changes in market access or conditional obligations will reflect Moody’s assessment of the issuer’s creditworthiness, including such considerations.

4. Rating triggers: Rating triggers — especially if near an existing rating and requiring significant remedies, such as repayments or posting of collateral — can severely restrict a company’s available outcomes and create additional volatility in a company’s creditworthiness. The use of ratings in triggers can make the rating a causal element of a company’s creditworthiness. In managing the rating system, Moody’s will treat rating triggers as we would other elements of “conditionality” such as stock-price triggers or material adverse-change clauses. To the extent that these elements of conditionality are consequential to a company’s future creditworthiness (or even viability), Moody’s acts as judiciously as possible in reaching a rating conclusion. We do not, however, forbear, or allow a company’s use of our ratings, to delay rating actions. The three key elements of Moody’s rating system management as applied to rating triggers are:

4 Moody’s Special Comment

Awareness. Moody’s is working to be as comprehensively aware of rating triggers and other material elements of contingent claims as possible for all rated issuers.2 Depending on their potential consequences, and if we are not aware of rating triggers, we may not be able to reach sound analytical judgments. Analysis. Moody’s will have refined, consistent views on the implications and consequences of rating triggers, especially in areas where Moody’s is not involved in their creation (e.g., not involving Moody’s Structured Finance department) and where utilization may be rap- idly evolving. Disclosure and Discussion. We will strive to make the results of our analysis known — first, to the issuer and banker, and, second, to the market. Market disclosure is subject, however, to respecting the confidentially of non-public information disclosed to us by the issuer or its agents.

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Lecture 7

Chapter 13

Fiscal Policy


• Keynesian economics • What is fiscal policy • Keynesian view of fiscal policy • Criticism to fiscal policy – Alternative views

• US Fiscal Policy

Keynesian Economics

Prior to Keynes

Classical economists believe the market to be self- correcting and focus on long-run growth aimed at expanding the LRAS.

Motivation: The Great Depression

Keynesian Economics-Overview

A school of economic thought that emerged as an outgrowth of the Great Depression in the 1930s.

Led by John Maynard Keynes, who is considered the most influential economist of the 20th Century.

Keynes developed a theory that provided both an explanation for the persistent unemployment of the 1930s.

He argued against the self-correcting mechanism through resource & output prices.

Keynesian economists believe that market corrections can take a long time due to sticky wages, and focus on policy aimed at AD.

Rather, he advocated for increasing output by increasing spending.

Equilibrium in the Keynesian Model

Equilibrium occurs when total spending (aggregate demand) equals current output. When this is the case, producers have no reason to expand or contract output.

Firms will only produce the amount of goods and services they believe people plan to buy.

If total spending is less than full employment output, inventories will rise and firms will reduce output & employment …. And vice versa!

The Multiplier Effect

The principle that a $1 increase in any of the components of spending will lead the economy to expand by more than the initial $1 spending.

That is because an individuals spending is an income of another individual.

The Multiplier Effect- Example

Consider the construction of a new interstate highway.

Costs about $410 million financed by the State government.

This should increase spending directly by $410 million.

However, the project is using construction workers, masons, cement, steel, … etc.

The project generates $410 million in income for providers of the resources.

The resource suppliers will be spending fraction of their additional income on goods & services.

This spending is income for people who supply these goods and services (who will spend a fraction of it).

And so on!

Multiplier Effect

The Multiplier Effect

The size of the multiplier depends on the Marginal Propensity to Consume (MPC)

MPC is the proportion of additional income that individuals/households choose to spend on consumption.

MPC= /

The size of the multiplier increases as MPC increases


If the MPC=3/4, what would be the total change in income that would result in an addition of your consumption by $1200?

A $1000

B $1600

C $1800

D $200

B. $1600


Overview of Fiscal Policy


Fiscal Policy: A form of government deliberate intervention that uses taxes and government expenditure policies as tools to achieve some economic goals.

Who conducts fiscal policy?

Initiated by the Council of Economic Advisers (CEA) — A council of 3 economists appointed by the president.

Requires legislative approval through the Congress


Government Budget: A record of all government revenue from multiple sources and government expenditure on different areas.

Budget Balance: Total government spending = Total revenue

Budget deficit: Total government spending > total revenue

◦ When the money supply is constant, deficits must be covered with borrowing. The U.S. Treasury borrows by issuing bonds.

Budget surplus: Total government spending is < total revenue.

◦ Surpluses reduce the magnitude of the government’s outstanding debt.

Government Budget


Taxes Non-tax revenue



Recurring spending on wages and salaries

Spending on transfer programs

Interest payments on debt



Grants/aid to other countries

Budget Surpluses and Deficits

Changes in the size of the budget deficit or surplus may arise from either:

◦ a change in cyclical economic conditions ◦ a change in discretionary fiscal policy (the government is stimulating

or restraining demand)

The federal budget is the primary tool of fiscal policy. Differentiate between Mandatory Spending & Discretionary Spending

2012 US Government Spending

Mandatory vs Discretionary Spending

Mandatory Spending:

Government spending that is determined by ongoing programs like Social Security and Medicare.

Discretionary changes in fiscal policy:

Deliberate changes in government spending and/or taxes designed to affect the size of the budget deficit or surplus.

Fiscal Policy in the Keynesian View

Fiscal policy in the Keynesian View

Keynesian theory emphasis the role of AD in stimulating the economy.

The government can only control the its spending! Fiscal policy is a tool to reduce fluctuations in AD.

A balanced budget is not optimal.

Rather a counter-cyclical policy should be used to offset fluctuations

in AD.

During a recession, the government should increase spending

(expansionary fiscal policy) which will result in a budget deficit.

During a boom, the government should reduce spending (contractionary fiscal policy) which will result in a budget surplus.

Expansionary Fiscal Policy

Used in Recessions Leads to budget deficit Can be achieved by either:

Increase government spending on goods and services, or

Reduce taxes

Use AD-AS model to explain the behavior of the economy during a

recession. There are two solution:

Self adjusting economy

Expansionary fiscal policy .

Contractionary/Restrictive Fiscal Policy

Used in economic booms, when inflation is high Leads to budget surplus Can be achieved by either:

Reduce government spending on goods and services, or

Increase taxes

Use AD-AS model to explain the behavior of the economy during an

inflationary period. There are two solution:

Self adjusting economy

Restrictive fiscal policy .

Policy Options: G or T?

Depends on the size of the government

If a government has many unmet infrastructure obligations, then it might be a better option to increase government expenditure during recessions, and increase taxes in times of high inflation.

But if the government is too large (and potentially inefficient), then tax cuts during recessions and cutting government spending during high-inflation periods is more recommended.

Why Should Fiscal Policy Work

When unemployment is high, the initial spending can be a reason to bring more people into employment.

But in normal times, additional spending will bid resources away from other activities, which means there will be upward pressure on prices and the additions to income will be smaller.

Automatic Stabilizers

Built-in features that automatically promote budget deficit during a recession and a budget surplus during an inflationary boom, without the need to change in policy.

• Unemployment benefits

• Corporate profit tax • Progressive income tax

Criticism to Fiscal Policy

Criticism to Fiscal Policy

Critiques of Fiscal policy cite three major reasons:

Timing issues

Secondary effects of fiscal policy which undermine its effectiveness – such as crowding out and saving shifts by households.

Incentive effects of fiscal changes that includes changes in the composition of government spending and the supply-side effects.


The key issue in using fiscal policy is timing.

It is always difficult to accurately time fiscal policy due to 3 lag effects:

◦ Recognition lag: sound policy requires knowledge of economic conditions 9 to 18 months in the future, which is hard.

◦ Implementation lag: It takes time to institute a legislative change.

◦ Impact Lag: There is a time lag between when a change is instituted and when it causes significant impact.

Crowding Out Theory

Crowding-out effect: occurs when private spending falls in response to increases in government spending.

An increase in borrowing to finance a budget deficit will push real interest rates up and thereby reduce private consumption and investment, which counteracts the impact of the expansionary fiscal policy.

Crowding-Out in an Open Economy

Larger budget deficits and higher real interest rates lead to an inflow of capital, appreciation in the dollar, and a decline in net exports.

Crowding Out Summary

Neoclassical View-Saving Shifts

According to the Neoclassical economists: • The government budget deficit in the current period will be financed by higher future taxes.

• Because HH and individuals know this, they will save their increased income to be able to pay for the higher future taxes.

• Because in the current period the government is borrowing and HH are saving their additional income, the interest rates are unchanged.

• Accordingly, the higher government spending does not stimulate higher demand.

Fiscal Policy in the US

US Federal Tax Revenue

US Federal Spending

Fiscal Policy During the Great Recession (2008-2009)

As the economy dipped into the recession of 2008-2009, both the Bush and Obama administrations moved to increase federal spending and enlarge the deficit just as Keynesian analysis proscribes.

Was the expansionary fiscal policy effective?

Keynesians answer “Yes.” They believe the recession would have been much worse in the absence of the expansionary fiscal policy.

Critics respond “No.” The recovery was the weakest of the post WWII era.

What happened to the US Federal Debt?

Business firms demand for resources cheap essay help


Lecture 6

Chapter 12 cont.

Resource Market

Demand for Resources: Business firms demand resources (labor and capital) because they contribute to the production of goods the firm expects to sell at a profit.

The demand curve for resources slopes down and to the right.

Supply of Resources:

Households supply resources in exchange for income.

Higher prices increase the incentive to supply resources; thus, the supply curve slopes up and to the right.

Equilibrium in the Labor Market

Loanable Funds Market

The interest rate coordinates the actions of borrowers and lenders.

From the borrower’s viewpoint, interest is the cost paid for earlier availability.

From the lender’s viewpoint, interest is a premium received for waiting, for delaying possible current expenditures into the future.

The Money and Real Interest Rates

The money interest rate is the nominal price of loanable funds. The real interest rate is the real price of loanable funds.

The difference between the money rate and real interest rate is the inflationary premium.

This premium reflects the expected decline in the purchasing power of the dollar during the period the loan is outstanding.

i = r + inflation

Inflation & Interest Rate

Foreign Exchange Market

When Americans buy from foreigners or make investments abroad, they demand foreign currency in the foreign exchange market.

When Americans sell products and assets (including bonds) to foreigners, they generate a supply of foreign currency (in exchange for dollars) in the foreign exchange market.

The exchange rate will bring the quantity of foreign exchange demanded into equality with the quantity supplied.

Appreciation & Depreciation

Appreciation: Increase in the value of the domestic currency relative to foreign currencies

Depreciation: Reduction in the value of the domestic currency relative to foreign currencies

Capital Flows and Trade Flows

When equilibrium is present in the foreign exchange market, the following relation exists:

Imports + Capital Outflows=Exports + Capital Inflows

This relation can be written as:

Imports – Exports= Capital Inflows – Capital Outflows

Trade Balance = Net Capital Flows

Capital Flows and Trade Flows

◦ When imports exceed exports, a trade deficit occurs. ◦ If, instead, exports exceed imports, a trade surplus is present.

When the exchange rate is determined by market forces, trade deficits will be closely linked with a net inflow of capital.

Conversely, trade surpluses will be closely linked with a net outflow of capital.

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Lecture 5

Chapter 12

Aggregate Demand and Aggregate Supply

Aggregate Supply (AS)

• The total supply for final goods and services in an economy

• The AS curve indicates the willingness of the producers to supply goods & services at different price levels.

Aggregate Supply (AS) – Cont’d

When considering the AS, we need to distinguish between:

Short-run (SR):

A period of time during which (some) prices are fixed (prices are NOT adjustable because they are determined by prior contracts).

Long-run (LR):

A period of time, long enough, for agents to modify their behavior in response to price changes.

Aggregate supply is a schedule or curve showing the level of real domestic output available at each possible price level. The relationship is determined on the basis of whether input prices and output prices are fixed or flexible.

In the short run, input prices are fixed but output prices are variable.

In the long run, input prices and output prices can vary


Short-Run Aggregate Supply (SRAS)

Indicates the various quantities of goods and services that firms supply in response to the changing demand conditions that alter the price level.

Upward sloping (positive relationship between the price level and the quantity of the output to be produced)

Short-Run Aggregate Supply (SRAS) – Cont’d

SRAS curve is upward sloping (has a positive slope)

Because input prices are fixed, changes in the price level affect the firm’s real profit, which affect their decision of how much output to produce.

Factors that shift the SRAS

Temporary supply shocks

• Changes in resource prices

• Changes in expected future prices

Changes in resource prices: Wages and salaries make up about 75 percent of all business costs. Other things being equal, decreases in wages reduce per-unit production costs. So when wages fall, the aggregate supply curve shifts to the right. What will happen if the resource prices increase?

Changes in expected future prices: Sellers are motivated to sell the good at the highest price possible. If sellers expect that the price of a good will be increasing in the future, then they are likely to sell less today. The aggregate supply curve will shift to the left. What will happen if the sellers expect the prices to fall in the future?



Increase in Aggregate supply is represented by a rightward shift- SRAS1 to SRAS2

Decrease in Aggregate Supply is represented by a leftward shift- SRAS1 to SRAS3


Long-Run Aggregate Supply (LRAS)

Indicates the relationship between the price level and quantity of output after necessary sufficient time has passed so they adjust their prior commitments.

LRAS is related to the economy’s production possibilities constraint

The constraints are imposed by the economy’s resource base, and level of technology, and the efficiency of its institutional arrangements – Not related to the price level.

Long-Run Aggregate Supply (LRAS)

In the LR, the economy moves towards the full employment level of output (Y*).

Y* is NOT affected by the price level.

LRAS is independent of the overall price level.

Long-Run Aggregate Supply (LRAS) – Cont’d

Factors that shift the LRAS

• Factors that determine economic growth, e.g.:

Change in the recourses available Changes in technology

Changes in the quality of institutions


Important Note

LRAS shifts cause SRAS shifts…

However, the reverse is not true!

There are many factors that cause SRAS to shift but does not influence LRAS (for example temporary supply shocks that occur only in the SR).

Short-run Equilibrium

Short-run equilibrium occurs at the price level (P*) & the output level, where AD = SRAS.

Graphically, it occurs at output level where the AD and SRAS curves intersect.

At this market clearing price (P*), the amount that buyers want to purchase is just equal to the quantity that sellers are willing to supply.

Short-run Equilibrium

Long Run Equilibrium

LR equilibrium requires two conditions:

The aggregate quantity demanded = aggregate quantity supplied at the current price level.

Price level anticipated by decision makers equals the actual price level (agents fully adjusted to any changes in prices that occurred in the past).

In the LR: AD = SRAS = LRAS.

Long run Equilibrium

What happens when output is different from LR potential?

There are two scenarios:

• Output is greater than LR potential: Price level increases by more that what was anticipated.

In the SR, profit margins are high hence output increases Economic boom (unsustainable)

• Output is less than LR potential: Price level is less than what was anticipated. In the SR, profit margins are low hence Output shrinks

Recession (unsustainable)


Which curve does these factors affect? Do they cause a movement along the curve or a shift in the curve?

a. Due to the increase of clothes prices in the US, consumers substitute out of clothes made in the US to clothes made in Bangladesh

b. New Shale Gas Deposits are found in North Dakota

c. OPEC meets and decides to increase the world output of oil, which

results in the decline of the prices of oil in the next six months.

d. Consumers read positive news about expected future economic growth

e. New policies cause an increase in the cost of meeting government regulations.

Movement along the AD curve

LRAS/SRAS shift to the right

SRAS curve shifts to the left

AD shifts to the right

LRAS shifts to the left


Which curve does these factors affect? Do they cause a movement along the curve or a shift in the curve?

Imports increase (NX decrease, AD shifts to the left) Price level increases (Movement along AD and AS) The Japanese Earthquake and Tsunami of 2011 (SRAS shifts to the left) The invention of airplanes (LRAS and SRAS shift to the right) World War II (Multiple explanations (i) Government spending increases and AD shifts to the right (ii) Income of foreign countries go down hence net exports of domestic economy fall, shifting the AD to the left

(iii) Destruction of resources can cause SRAS to shift to the left.)


Impact of Exogenous Shocks

How the economy adjusts

• To analyze the effect of any shock to the economy, we study its impact on output, unemployment, and the price level.

• For an effective analysis, follow these steps:

Begin with the model at the LR equilibrium

Determine the curves that are affected by the shocks and identify the direction of each shift

Shift the curves in the appropriate directions

Determine the new SR/ LR equilibrium points

Compare the new equilibrium with the starting point.

Discuss the Impact of the following shocks on the US economy

World War II (discuss the impact on the Japanese economy and the US economy)

Strong economic growth in China that increases income in China (Hint: China is the second big trading partner with the US)

The housing market bust in 2008-09

The 2007 oil price shock.

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ECON 121 Homework 2 Ayesha Jamal



Submit your work at the beginning of class on Monday (July 23rd, 2017). You may work with other students but the write-ups must be unique. For calculation questions you must show your work in order to get partial credits. The write-ups MUST be handwritten.


1. What is the budget deficit? How are budget deficits financed? Why do Keynesians believe that budget deficits will help the economy during a recession? (12 Points)

2. Imagine that the country is in a recession and the government decides to increase spending. It commissions a very large statue for $50 million. To pay for the statue, the government borrows all of the $50 million. As a result, the interest rate increases from 3% to 4%.

What is crowding out? (4 Points) Assuming total crowding out, what will happen to C, I , G and total AD as a result of the government action? (7 Points)

3. Assume very bad weather conditions that led to a notable decline in agriculture production in a predominantly agricultural economy. Use the AD-AS model to trace the effect of this shock. More specifically, answer the following questions (and draw a graph):

a) Which curve(s) will shift and in which direction? (7 Points)

b) Describe the SR effects of such a shock (7 Points)

c) How will the economy adjust in the LR? (7 Points)

d) Suppose that the terrible weather conditions extended for multiple years and the economy fell in a deep recession. From a Keynesian perspective, how can the economy get out of this recession? Show in a graph (7 Points)

ECON 121 Homework 2 Ayesha Jamal

e) Discuss possible factors that would weaken the government efforts to get out of the recession (discuss in detail here… do not just list)? (7 Points)

f) If the government decided to use monetary policy instead of fiscal policy, what type of monetary policy should the Fed follow? Discuss the possible tools that the Fed can use (14 Points)

5. What is the difference between commodity money and fiat money? Under which category does the Euro fall and why? (14 points)


1. In early 2009, the U.S. economy was in deep recession. The newly elected President, Obama, vowed to use fiscal stimulus spending on “shovel-ready” project. The projects are deemed shovel-ready because they had already been approved and were just waiting for funding. Obama hoped this stimulus plan would create new jobs. For the entire question, assume that in the short-run equilibrium, output is less than full- employment.

a. If the MPC = 0.5, what is the value of the government spending multiplier? (7 points)

b. Given the size of the multiplier, what would be the implied change in income (GDP) from the stimulus package of $800 billion? (7 points)

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Understanding Moody’s Corporate Bond Ratings And Rating Process

This Special Comment is the third installment of Moody’s commentary about the rating process. It was written following extensive consultation with market participants in connection with Moody’s previous Special Comments: The Bond Rating Process in a Changing Environment and The Bond Rating Process: A Progress Report.1

Introduction Earlier this year, we suggested a number of possible changes to our rating process. We indicated that we would make no changes until after we had engaged in extensive market dialog, which we have done over the last four months.

From these discussions, we determined that market participants support greater disclosure by Moody’s of how we arrive at our ratings and why we change them. They also have heightened expec- tations about the role of rating agencies as vehicles for greater issuer transparency and disclosure, including disclosure of short-term liquidity positions and conditional obligations, such as those with rating triggers.

However, participants strongly oppose some of the possible changes we suggested: increasing the frequency of rating changes without reviews; and streamlining rating outlooks, or even eliminat- ing them. Market participants strongly oppose these changes because they generally desire ratings stability, and they believe such changes would increase ratings volatility. They want ratings to be a view of an issuer’s relative fundamental credit risk, which they perceive to be a stable measure of intrinsic financial strength.

We accept the views that we have received and will endeavor to manage our rating process to make it most useful to market participants. We will also strive towards creating greater transparency in our ratings. We will continue to manage our rating system to produce stable long-term ratings, recognizing, however, that in periods of heightened credit stress, ratings have historically been adjusted more frequently.

1. The Bond Rating Process in a Changing Environment, January 2002; The Bond Rating Process: A Progress Report, February 2002.

New York Jerome S. Fons 1.212.553.1653 Richard Cantor Christopher Mahoney

Contact Phone

continued on page 3

2 Moody’s Special Comment

© Copyright 2002 by Moody’s Investors Service, Inc., 99 Church Street, New York, New York 10007. All rights reserved. ALL INFORMATION CONTAINED HEREIN IS COPY- RIGHTED IN THE NAME OF MOODY’S INVESTORS SERVICE, INC. (“MOODY’S”), AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE RE- PRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the pos- sibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, me chantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or in- ability to use, any such information. The credit ratings, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COM- PLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guar- antor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. Pursuant to Section 17(b) of the Securities Act of 1933, MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,000 to $1,500,000. PRINTED IN U.S.A.

Author Senior Production Associate

Jerome S. Fons Tiffany Lam

We have also learned from our dialog that there is incomplete market understanding of some aspects of how we manage the rating process, of the intended meaning of Moody’s ratings, and of their empirical behavior. We believe that the primary social value, or public good, that rating agencies can produce is greater efficiency in capital markets. In order to contribute to such efficiency, we need to clearly communi- cate how we will behave in the markets and how our ratings will behave. This Special Comment provides important additional information that we believe will assist the markets in understanding our behavior and our ratings.

This Special Comment first summarizes our recent dialog with market participants, then it sets forth a number of important principles that govern how Moody’s conducts its ratings process. Finally, it comments on the intended meaning of Moody’s ratings and their empirical behavior.

Dialog with Market Participants In January 2002, Moody’s published a Special Comment (The Bond Rating Process in a Changing Environment) that discussed a number of initiatives intended to enhance the quality and timeliness of our ratings and research. These initiatives included:

• Providing Moody’s analysts with information about the market’s opinion of an issuer’s creditworthiness;

• Conducting a census of rating triggers in the contractual agreements of rated issuers; • Providing an in-depth analysis of the liquidity risk profiles of commercial paper issuers; and • Considering measures intended to improve rating timeliness, including shortening rating

reviews, quicker reaction to material events, increased incidence of rating changes without formal reviews, and streamlining, or eliminating, rating outlooks.

The Special Comment emphasized that “we will not make material changes to our rating process, nor will we move forward with any proposal without extensive market dialog.”

In February 2002, Moody’s published a second Special Comment (The Bond Rating Process, A Progress Report), that summarized preliminary market opinion and our responses to that opinion.

Over the past three months, Moody’s held over 35 meetings with issuer organizations, investors, asset management firms, regulators and other market participants to discuss the role of ratings. The meetings coincided with the publication of the two Moody’s Special Comments on the rating process.

Summary of Participants’ Responses Moody’s summarizes market participants’ responses to our request for comment as follows:

• Market participants desire ratings stability. They want ratings to be a view of an issuer’s fundamental credit risk, which they perceive to be a relatively stable measure of intrinsic financial capacity compared with other, more market-sensitive measures.

• Market participants are concerned that the use of quantitative inputs to the rating process will lead to greater volatility based upon transient market sentiment.

• Market participants want to know more about how we arrive at our rating conclusions, and they want us to disclose important considerations underlying changes in ratings.

• Market participants have heightened expectations about the role of rating agencies as vehicles for greater issuer transparency and disclosure. Investors desire that rating agencies demand nonpublic information from issuers and that they dig into it in a more forensic manner.

How Moody’s Interprets This Feedback Among our interpretations of the commentary are:

• The bond rating system remains very important to investor and issuer thinking and behavior. • Rating stability is highly valued by market participants. • Investors follow and react to multiple aspects of the rating system—e.g., rating outlooks and

What will happen to money demand over time admission essay help: admission essay help













MacroEconomics 7


















1. (Federal Reserve System) What are the main powers and responsibilities of the Federal Reserve System? What are its two mandates and some of its other goals? The Fed was to ensure sufficient money and credit in the banking system to support a growing economy. They had the power to issue bank notes, the power to buy and sell securities, and also the power to extend bank loans to member banks.

2. (Subprime Mortgages) What are subprime mortgages, and what role did they play in the financial crisis of 2008? Subprime mortgages are mortgages for a borrower with a not-so-good credit. A subprime mortgage normally had a mortgage broker. Brokers were more concerned about getting their share, so they would lie on loans to approve a borrower. Borrowers stopped making payments on the loans because they could not afford. Housing prices started to plunge led the financial crisis of 2008. Bankers did not want to loan money that they could not get back.

3. (Money Creation) Show how each of the following would initially affect a bank’s assets and liabilities.

a. Someone makes a $10,000 deposit into a checking account. Answer: The bank assets increased $10,000 in cash and liabilities increased by $10,000 in checkable deposits.

b. A bank makes a loan of $1,000 by establishing a checking account for $1,000. The bank has an assets of $1,000 and a liability of $1,000

c. The loan described in part (b) is spent.

d. A bank must write off a loan because the borrower defaults.

4. (Monetary Tools) What tools does the Fed have to pursue monetary policy? Which tool does it use the most?

5. (Monetary Control) Suppose the money supply is currently $500 billion and the Fed wishes to increase it by $100 billion.

a. Given a required reserve ratio of 0.25, what should it do?

b. If it decided to change the money supply by changing the required reserve ratio, what change should it make? Why may the Fed be reluctant to change the reserve requirement?

6. (Money Demand) Suppose that you never carry cash. Your paycheck of $1,000 per month is deposited directly into your checking account, and you spend your money at a constant rate so that at the end of each month your checking account balance is zero.

a. What is your average money balance during the pay period?

b. How would each of the following changes affect your average monthly balance?

I. You are paid $500 twice monthly rather than $1,000 each month.

II. You are uncertain about your total spending each month.

III. You spend a lot at the beginning of the month and a little at the end of the month.

IV. Your monthly income increases.

7. (Market Interest Rate) With a diagram, show how the supply of money and the demand for money determine the rate of interest. Explain the shapes of the supply curve and the demand curve.

8. (Money Supply Versus Interest Rate Targets) Assume that the economy’s real GDP is growing.

a. What will happen to money demand over time?

b. If the Fed leaves the money supply unchanged, what will happen to the interest rate over time?

c. If the Fed changes the money supply to match the change in money demand, what will happen to the interest rate over time?

d. What would be the effect of the policy described in part (c) on the economy’s stability over the business cycle?

Discussion on Cost and Competition popular mba argumentative essay help

Watch this video, Revenue, Profits, and Price: Crash Course Economics #24, to help you prepare for this week’s discussion.

Use the company for which you currently work, a business with which you’re familiar, or the dream business you want to start to reply to these prompts:

Do you think it’s easy for your selected business to enter this same industry?
What are some key fixed, variable, implicit, and/or opportunity costs?

Discuss with your peers:

Read one of your peer’s posts and share another idea for a type of cost.

Measuring the Economy’s Performance grad school essay help: grad school essay help

 Week 2 ProjectInstructions

Measuring the Economy’s Performance

For this assignment, you should use the information in the textbook and the information found on the official government website:

Based on the information contained in the textbook and on the Web site above, answer the following questions:

What does gross domestic product (GDP) tell us? How did GDP change from 2008? What caused these changes? What is real GDP? What was real GDP in 2008 and has it changed since 2008?
What was national income (NI) for 2008? What does national income tell us? What is the difference between GDP and NI? How has NI changed since 2008? What caused these changes?
What was disposable income (DI) for 2009? What does disposable income consist of? How did DI change from 2008? What caused these changes?
Does GDP measure the well-being of society? Why or why not?
What was GDP in 2008 (sometimes called GSP) for your state? How does your state rate when compared to other states?

Submission Details:

Submit a 4 to 6 page Microsoft Word document, using APA style.

Micro economic thought and theory argumentative essay help online


Prepare a research paper as part of a marketing research committee

for your organization about current microeconomic thought and theory

with a minimum word count of 850.

* Students who submit less than the minimum will receive a grade of a D.

Identify the fundamental lessons the Ten Principles of Economics

teaches regarding:

• How people make decisions

• How people interact

• How the economy works as a whole

Discuss how the following will directly impact the Organization with

specific Applications to help the committee members understand how

markets work:

• Current Events and Legislation that may have an impact on the

Equilibrium of the Organization.

• How society manages its scarce resources and benefits from

economic interdependence.

• Why the demand curve slopes downward and the supply curve

slopes upward.

• Where the point of equilibrium is and what does it determine?

• The impact of price controls, taxes, and elasticity on changes in

supply, demand and equilibrium prices.

Format consistent with APA guidelines.