Macro 6

2. Lecture 6
Macroeconomics

6. Trust

7. China Agreement

8. Farming in China
communes
Free-rider
20 - 40 million deaths
1978
secret agreement
raise my children

11. Worldview
Political
Legal
Economic

12. I.O.U.
$1
Dr. Pooley

13. I.O.U.
$100
May 13, 2020
Dr. Pooley

14. I.O.U.
$100 plus 5%
May 13, 2020
Dr. Pooley

15. I.O.U.
$100 plus 10%
May 13, 2020
Dr. Pooley

16. I.O.U.
$100
Coupon Rate 10%
Each Year
May 13, 2030
Dr. Pooley
$10 $10 $10 $10 $10 $10 $10 $10 $10 $10

17. Bonds
Special IOU
Price and Interest Rate go
in opposite directions

18. OPM
Other People’s
Money
Leverage

19. Leverage Ratio
Debt
Equity
=

20. Leverage Ratio
Other’s Money
My Money
=

21. Leverage Ratio
$50
$50
=1

22. Leverage Ratio
$90
$10
=9

23. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $110
Payback $90
End with $20
Double your $10

24. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $90
Payback $90
End with $0
Lost your $10

25. Leverage
Start with $10
Borrow $90
Buy for $100
Sell for $80
Payback $90
End with -$10
Bankruptcy

27. Individual
Mortgages
Package
as a
Security
Share
in the
Security
$200,000 $200,000 $200,000 $200,000 $200,000
$1,000,000
$20,000
Each
50
$1,000,000
8.0%
7.0%
$80,000
$70,000
Potential Profit
$10,000
Only $64,000
Short $6,000