Progress text (21 April)10.15: 1st half – LH 3211.00: 2nd half – LH 32

Units covered by the 1st progress test:The Business Cycle (causes, Keynesianism and

monetarism, graph description - vocabulary)

Trade(retail, wholesale, e-commerce, international trade,

free trade & protectionism, the EU)

Banking(types of banks, banking services, microfinance,

central banking, monetary policy, crisis of credit)

+ language of meetings

Central banking

Central banking functionsListening: RB, p 61

1a ListeningThe functions of a central bank:1) Implementing monetary policy• 1a) setting interest rate ceilings and floors• 1b) printing money or destroying it• 1c) open-market operations2) Exchange rate supervision3) Commercial banking supervision4) Acting as a lender of last resortRead the text carefully, underline words/phrases

that seem important/relevant to the topic. Are you sure you understand them?Ask a colleague for help...Do task II

1a ListeningI The functions of a central bank:1) Implementing monetary policy• 1a) setting interest rate ceilings and floors• 1b) printing money or destroying it• 1c) open-market operations2) Exchange rate supervision3) Commercial banking supervision4) Act as a lender of last resortRead the text carefully, underline words/phrases

that seem important/relevant to the topic. Are you sure you understand them?Ask a colleague for help...II: A–1b B–1a C–3 D–2 E–4 F–1c

Implementing monetary policyHW check

RB, p 62

I – 2 Do you understand the words below?

TIC-TAC-TOE: What is...

C + I + G + (X-M) = ?

Implementing monetary policyHW check

RB, p 62

I – 2 Do you understand the words below?

TIC-TAC-TOE: What is...

C + I + G + (X-M) = AD

C = Consumers' e___________ on goods and services.

I = Investment spending by companies on c______ goods.

G = G_________ expenditures on publicly provided goods and services.

X = E______ of goods and services.

M = I_______ of goods and services.http://www.investopedia.com/terms/a/aggregatedemand.asp#ixzz3XDmhLpOl

Implementing monetary policyHW check

RB, p 62

I – 2 Do you understand the words below?

TIC-TAC-TOE: What is...

C + I + G + (X-M) = AD (aggregate demand = “total spending”)

C = Consumers' expenditures on goods and services.

I = Investment spending by companies on capital goods.

G = Government expenditures on publicly provided goods and services.

X = Exports of goods and services.

M = Imports of goods and services.http://www.investopedia.com/terms/a/aggregatedemand.asp#ixzz3XDmhLpOl

What is...?

... the total stock of money circulating in an economy. The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets.

MONEY SUPPLY• An increase in the supply of money typically ________

interest rates, which in turns generates _______ investment and puts more money in the hands of consumers, thereby stimulating c________. Businesses respond by ordering ______ raw materials and increasing p________. The increased business activity r______ the demand for labor. The opposite can occur if the money supply falls or when its growth rate declines.http://www.investopedia.com/terms/m/moneysupply.asp#ixzz3XDpFmcRF

What is...?

... the total stock of money circulating in an economy. The circulating money involves the currency, printed notes, money in the deposit accounts and in the form of other liquid assets?

MONEY SUPPLY• An increase in the supply of money typically lowers

interest rates, which in turns generates more investment and puts more money in the hands of consumers, thereby stimulating spending. Businesses respond by ordering more raw materials and increasing production. The increased business activity raises the demand for labor. The opposite can occur if the money supply falls or when its growth rate declines.http://www.investopedia.com/terms/m/moneysupply.asp#ixzz3XDpFmcRF

What is...

... the rate charged by the central bank for lending to other banks?

DISCOUNT RATE

What is...

... bank’s ability to fund loans?

LENDING CAPACITY

What is...... the amount of funds that banks must hold in reserve

against deposits made by their customers?http://www.investopedia.com/terms/r/requiredreserves.asp#ixzz3XDxScvfn

RESERVE REQUIREMENT

What is...

... the opposite of borrow?

LEND

What is...

... a synonym for loose monetary policy?

EXPANSIONARY

What is...

... the use of government spending and taxation to influence the economy?

FISCAL POLICY

What is...

... debt that is not supported by any assets of the borrower?

UNSECURED DEBT

II Hand in the table?

III Present expansionary or restrictive monetary policy.

Suppy the opposite term to complete the text about restrictive monetary policy.

If the economy is in recession / ___________, the central bank should stimulate / ______ it. This can be done be lowering / ________ the reserve requirement, dropping / ________ the discount rate, or by buying / ________ bonds on the open market.

II Hand in the table?

III Present expansionary or restrictive monetary policy.

If the economy is in recession / overheating, the central bank should stimulate / cool it. This can be done be lowering / raising the reserve requirement, dropping / increasing the discount rate, or by buying / selling bonds on the open market.

IV Monetary and fiscal policy

Fiscal policyspending greater reduce unemploymentdemand hiring expansionary fiscal

inflationwishes restrictive fiscal make

Monetary policyrate borrow bank more less expansionary monetary policy opposite spendless restrictive monetary policy

V Up or down?

Expansionary RestrictiveUP Money supply DOWN

DOWN Interest rate UPUP Public spending DOWN

DOWN Taxes UPUP Demand DOWN

DOWN Bank savings UPUP Growth DOWN

DOWN Unemployment UPUP Inflation DOWN

How do the two types of fiscal and monetary policies change the following?

US monetary policy according to CBS students (2006)

The Federal Reserve (Central bank of

Ben Bernanke

Chairman of the Federal Reserve

Glenn HubbardDean of Columbia Business School

http://www.youtube.com/watch?v=3u2qRXb4xCU

The functions of a central bank

1) Implementing monetary policy2) Exchange rate supervision (after 1st ppt)3) Commercial banking supervision4) Acting as a lender of last resort

Pair up!

• Treasury Boris Lalovac

• Bank of England Ministar financija

• Chancellor Ministarstvo financija

• The Governor Hrvatska narodna banka

• George Osborne Guverner HNB

• _________ Boris Vujčić

Paired up!

• Treasury Ministarstvo financija• Bank of England Hrvatska narodna

banka • Chancellor Ministar financija• The Governor Guverner HNB• George Osborne Boris Lalovac• Mark Carney Boris Vujčić

Northern Rock Banking Crises, RB, p 59Match up the words and definitions below

1 bank run 2 shakeout 3 the Treasury

4 credit squeeze 5 the Chancellor 6 solvent• Read the introduction – underline unknown words

Scan the rest of the text and match questions to corresponding paragraphs

1D 2G 3F 4B 5E 6A 7C• Read carefully and underline unknown words / parts you do

not understand

IV Match the following words from the text to corresponding explanations, p 60 (finish for HW)

HW: V Draft notes/draw a flow chart for events described

Northern Rock, RB, p 59-60follow-up activity

1 unsecured debt

2 bailout

3 on the cheap

4 to stem

5 to hamper

6 covered bonds

a to stop

b to prevent, hinder

c issued with a guarantee (an asset)

d at a low cost

e debt that is not supported by any assets of a borrower

f providing money to get sb. out of financial trouble

Northern Rock, RB, p 59-60follow-up activity

1e unsecured debt

2f bailout

3d on the cheap

4a to stem

5b to hamper

6c covered bonds

a to stop

b to prevent, hinder

c issued with a guarantee (an asset)

d at a low cost

e debt that is not supported by any assets of a borrower

f providing money to get sb. out of financial trouble

7 run on a bank

8 come under pressure

9 (borrow) over their heads

10 mortgage lender

g organization that makes loans for buying property with the property as security

h a sudden demand by many people

i more than would be reasonable, intelligent

j to feel pushed to act

7h run on a bank

8j come under pressure

9i (borrow) over their heads

10g mortgage lender

g organization that makes loans for buying property with the property as security

h a sudden demand by many people

i more than would be reasonable, intelligent

j to feel pushed to act

Northern Rock Banking Crises, RB, p 59

• Who is to blame for the Northern Rock crisis?• Why did the Bank of England not act earlier?• Why did the Tresury get involved?• Are critics convinced by the Bank’s response?• What does the Chancellor’s guarantee for Northern

Rock cover?• How long will the guarantee last?• What about investors who lent money to Northern

Rock? Who will not be repaid? a) or b)a) Investors who bought the bank’s covered bonds.

b) Investors who made unsecured loans.

Northern Rock Banking Crises, RB, p 59

• Who is to blame for the Northern Rock crisis?• Why did the Bank of England not act earlier?• Why did the Tresury get involved?• Are critics convinced by the Bank’s response?• What does the Chancellor’s guarantee for Northern

Rock cover?• How long will the guarantee last?• What about investors who lent money to Northern

Rock? Who will not be repaid?a) Investors who bought the bank’s covered bonds.

Why? What are covered bonds?

Intro to crisis of credit

HANDOUT: Helga’s bar (a humorous explanation of how the crisis of credit started – the crisis of 2008)

Students who did not attend on Tuesday should read Helga’s bar and do the exercises.

You can download the text from my web site for BE 2.

Crisis of creditForget about Helga and “DRINKBONDS” for a

moment.

This is what really happened:

CRISIS OF CREDIT VISUALISEDhttp://jonathanjarvis.com/crisis-of-credit

Vocabulary focus

1 subprime borrowers A failure to repay a loan

2 credit rating B investment fund that combines safe & risky investments

3 default C clients who may not be able to repay their loans

4 hedge fund D assets you promise to give if you cannot repay a loan

5 security E estimates of people’s ability to fulfill their financial commitments

6 foreclose F to take possession of one’s property because they failed to

continue paying a loan

Vocabulary focus1 subprime borrowers C clients who may not be

able to repay their loans

2 credit rating E estimates of people’s credit standing ability to fulfill theircredit worthiness financial commitments

3 default A failure to repay a loan

4 hedge fund B investment fund that combines safe & risky

investments

5 security D assets you promise to give to the lender if you

cannot repay a loan

6 foreclose F to take possession of one’s property because they failed to continue paying a loan

MK, p 75 – Reading: The subprime crisis and the credit crunch

MK, p 75 – Reading: The subprime crisis and the credit crunch

INTRO:• Subprime crisis...?

... a financial crisis that arose...

1 Where? 2 When? 3 What happened?

A numerous institutional lenders and hedge funds collapsed

B the mortgage market 

C after a sharp increase in mortgage foreclosures (mainly subprime) - Write your own definition!

Subprime crisis is a financial crisis that arose in...

the mortgage market after a sharp increase in ....

mortgage foreclosures (mainly subprime) collapsed ...

numerous mortgage lenders and hedge funds.

The subprime crisis and the credit crunch

• credit crunch = credit squeeze = credit crisis: - ________ in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks.

increase reduction Causes:- often caused by a sustained period of ________

and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known.

careless careful

The subprime crisis and the credit crunch

• credit crunch = credit squeeze = credit crisis: - ________ in the general availability of loans (or credit) or a sudden tightening of the conditions required to obtain a loan from the banks.

increase reduction Causes:- often caused by a sustained period of ________

and inappropriate lending which results in losses for lending institutions and investors in debt when the loans turn sour and the full extent of bad debts becomes known.

careless carefulInvestor in debt? Loan turns sour?

How did the subprime crisis lead to the credit crunch/crisis/squeeze?

Read: MK, p 75

Put the sentences below in the right order3 1 5 2 4 6

→ Vocabulary:1B 2C 3E 4D 5A

Who is to blame?

• The sharp increase in foreclosures and the problems in the mortgage market were largely blamed on:

low bubble loose lenders– _______ lending practices– ______ interest rates– a housing _________ – excessive risk taking by ________ and investors.

Who is to blame?

• The sharp increase in foreclosures and the problems in the mortgage market were largely blamed on:– loose lending practices– low interest rates– a housing bubble – excessive risk taking by lenders and

investors.

HW: Watch the Crisis of credit video and answer the questions

(pause the video when necessary)

• Following the tech bubble and the events of September 11, the Federal Reserve stimulated a struggling economy …HOW?

... by ________________________________________

• WHAT WAS THE RESULT ON THE HOUSING MARKET?

_____________________________________________

• WHAT WAS THE CONSEQUENCE FOR BORROWERS?

______________________________________________

• This left mortgage lenders with property that was worth …

HOW MUCH? ______________________________________

• WHAT HAPPENED TO SEVERAL LENDERS

______________________________________________• In the wake of the meltdown, …WHAT DID CENTRAL BANKS

DO?Source: SUBPRIME MELTDOWN (www.investopedia.com)