【正文】 – The measure of the economy’s total production of goods and services – Rapidly growing GDP indicates an expanding economy Unemployment rate (失業(yè)率 ) – (Persons are unemployed but actively seeking and willing to work) / (Total labor force) – (1 – unemployment rate) measures the extent to which the economy is operating at full capacity 1213 Key Economic Variables Inflation (通貨膨脹 ) – The rate at which the general level of prices is rising – High Inflation rates are often associated with “overheated” economies, ., the demand for goods and services exceeds productive capacity, which leads to upward pressure on prices – Tradeoff between inflation and unemployment: stimulate the economy enough to maintain nearly full employment, but not so much as to bring inflationary pressures 1214 Key Economic Variables Interest rates (利率 ) – High interest rates reduce the PV of future CFs, thereby reducing the attractiveness of investment opportunities Therefore, high interest rates could restrain the overheated economy Budget Deficits (預算赤字 ) – The budget deficit of the government is the difference between government spending and taxes – Any budgetary shortfall must be offset by government borrowing (through issuing Tbonds) – Large amounts of government borrowing could force up the interest rate and thus “crowd out” (排擠 ) private borrowing and investing 1215 Key Economic Variables Sentiment indicator (消費者心理因素指標 ) – Consumers’ and producers’ optimism or pessimism concerning the economy are important determinants of economic performance – Beliefs influence how much consumption and investment will pursued and thus affect the aggregate demand for goods and services – The consumer confidence index (CCI, 消費者信心指數 ) is calculated and published in many countries (in Taiwan, the CCI survey is conducted by NCU) The P/E ratio (本益比 ) rule: – For Samp。P 500 index, the P/E ratio tends to be in the range of 12 to 25 (see the next slide) – The exact P/E ratios for market indexes vary with the above mentioned economic variables 1216 Samp。P 500 versus EPS Estimate ※ EPS is defined as the earnings per share for the Samp。P 500 index portfolio ※ The series of Samp。P 500 is almost between the series of 12 EPS and 25 EPS, which implies that the P/E ratio is on average in the rage of 12 to 25 1217 INTEREST RATES 1218 Interest Rates (IRs) The level of IRs is one of the most important macroeconomic factor to be considered in one’s investment analysis – Forecasts of IRs affect present values and thus expected returns for investments (especially fixedine investments) – For stock markets, increases in IRs tend to be bad news High IRs reduce the PVs of stock investment High IRs attract investors to deposit capital in banks (or invest in fixedine securities offering high yields) and thus affect the incentive to invest in stocks – Forecasting IRs is one of the most difficult parts of applied macroeconomics 1219 Interest Rates (IRs) Four factors determining the IRs ※ The first three factors determine the level of real interest rates (實質利率 ) (see Slides 1219 and 1220) and the last factor is the expected inflation rate (期望物價成長率 ) 1. Supply of funds from savers, primarily households Supply ↑ ? the supply curve is shifted to the right ? equilibrium real IR ↓ 2. Demand for funds from businesses Demand ↑ ? the demand curve is shifted to the right ? equilibrium real IR ↑ (from point E to point E’) 3. Government’s supply or demand for funds Currency supply ↑ ? real IR ↓ (stimulate economic growth) Government borrowing demand ↑ ? real IR ↑ 1220 Determination of the Equilibrium Real Rate of Interest ※ The fundsupply curve slopes up from left to right because the higher the real interest rate, the greater the fund supply from household savings ※ The funddemand curve slopes down from left to right because the lower the real interest rate, the more projects firms will undertake, due to the lower capital cost 1221 Interest Rates (IRs) 4. Expected rate of inflation Interest rates contain a premium for expected inflation The Federal Reserve typically raises interest rates proactively when inflation is expected to increase ※ To obtain the nominal interest rate (名目利率 ), one needs to add the expected inflation rate to the equilibrium real rate (均衡實質利率 ) 1222 DEMAND AND SUPPLY SHOCKS 1223 Demand Shocks Demand shock (需求衝擊 ) – An event that affects the aggregate demand for goods and services (整體對貨物與服務的需求 ) – Demand could increase due to, for example, Reduction in tax rates Increases in the money supply, governmental spending, and foreign export demand – Positive demand shocks is usually associated with the increases of IRs and inflation rates (demand ↑ ? demand supply ? price and thus inflation rate ↑ ? nominal IR ↑。 or demand ↑ ? funds needed by business firms ↑ ? IR ↑) Increases of demand generally implies the expansion and boom of the economy 1224 Supply Shocks Supply shock (供給衝擊 ) – An event that influences the total production capacity and costs (整體製造能力與製造成本 ) – Supply decreases due to, for example, Increases of prices of raw materials Freezes, floods, or droughts that may destroy agricultural crops Decreases in the