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ECO2013 > Lectures 22-24 > Flashcards

Lectures 22-24 Flashcards

1
Q

What is a reserve requirement?

A

The minimum fraction deposits that banks must hold as reserves?

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2
Q

What happens when the reserve requirements increase?

A

Banks can make fewer loans
The money supply SHRINKS

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3
Q

What kind of monetary policy is raising the reserve requirement?

A

Contractionary

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4
Q

What happens when the reserve requirements decrease?

A

Banks can make more loans
Money supply GROWS

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5
Q

What kind of monetary policy is lowering the reserve requirement?

A

Expansionary

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6
Q

How do you calculate the money multiplier?

A

change money supply/change monetary base

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7
Q

Is the change in money supply or monetary base greater?

A

The change in money supply is greater than the change in the monetary base

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8
Q

How do you calculate the money multiplier assuming NO excess reserves?

A

1/reserve requirement

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9
Q

How do you calculate the money multiplier assuming YES excess reserves?

A

1/fraction banks hold as reserves

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10
Q

What line does open market purchases shift? And what way?

A

The supply line shifts to the right

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11
Q

In the market for reserves (interbank lending), an open market purchase shifts the ___ line to the ____ and ____ the federal funds interest rate and _____ the quantity of reserves.

A

An open market purchase shifts the supply line to the right and decreases the federal funds interest rate and increases the quantity of reserves.

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12
Q

In the market for reserves, what does the supply line represent?

A

The monetary base

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13
Q

In the market for money, an open market purchase does what?

A

Shifts the supply line to the right which decreases the short term interest rate and increases the quantity of moneyWh

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14
Q

What is the opportunity cost of holding money?

A

The short term interest rate of money

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15
Q

In the market for loanable funds, what happens after an open market purchase?

A

The supply line shifts to the right, which decreases the REAL INTEREST RATE and increases the quantity of loanable funds.

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16
Q

In the real economy, what happens after an open market purchase?

A

The aggregate demand line shifts to the right. The price level increases and the real GDP increases (meets potential GDP)

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17
Q

What happens when a country’s currency appreciates?

A

The exchange rate increases

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18
Q

In the market for USD, what happens as the exchange rate decreases?

A

US exports become more competitive. Foreign households want more US goods and demand more USD

19
Q

In the market for USD, what happens as the exchange rate decreases (pt 2)?

A

The demand for USD increases

20
Q

In the market for USD, what happens as the exchange rate increases?

A

American consumers are more likely to purchase foreign imports and supply their USD.

21
Q

What do currency traders do when the USD exchange rate is lower?

A

They purchase more USD

22
Q

What do currency traders to when the USD exchange rate is higher?

A

The sell more USD

23
Q

What are the demand shifters (USD)?

A

Change in the demand for US exports
rGDP growth in close trading partner countries
Changes to the real interest rate
Expected future exchange rate

24
Q

What relationship do the demand shifts have of USD?

A

POSITIVE

25
Q

What are the exchange rate policies?

A

Market rate (floating exchange rate)
Managed Float
Crawling peg
Peg (fixed exchange rate)

26
Q

What is the least interventionist exchange rate policy?

A

Floating/market

27
Q

What is a managed float?

A

If a currency appreciates/depreciates past a certain amount, the central bank steps in

28
Q

What kind of countries usually use a peg exchange rate policy?

A

Countries reliant on trade or tourism

29
Q

How does a central bank appreciate its currency?

A

by buying their own currency using reserves of other countries

30
Q

What does purchasing its own currency do (in relations to supply and demand)

A

Increases demand for their currency

31
Q

When would a central bank want to appreciate its currency?

A

When the market rate falls below the target rate

32
Q

When would a central bank want to depreciate its currency?

A

When the market rate rises above the target rate

33
Q

How does a central bank depreciate its own currency?

A

By selling its own currency.

34
Q

What does the selling of a currency do (by the currency owner)

A

Increases the supply of their currency

35
Q

What does the balance of payments always have to equal?

A

0

36
Q

What are the 3 accounts in the balance of payments?

A

current account
capital/financial account
settlements account

37
Q

What does a positive number in the current/capital account mean?

A

Money is coming into the US

38
Q

How do you calculate the current/capital account?

A

Exports-imports
Net interest income
net transfers
net investments

39
Q

What does net interest income show up as is it is coming INTO THE US?

A

Positive, negative if coming out of the US

40
Q

What do net transfers always show up as?

A

negative

41
Q

What does money from factories in foreign countries show up as in the capital account?

A

negative

42
Q

In the official settlements account, money coming into the country from other countries shows up as ____ and losing money shows up as _____

A

Negative, positive

43
Q

Remittances are part of what account?

A

The CURRENT account

44
Q

Purchasing a good from another country shows up as ___ in the ___ account?

A

A negative entry into the current account

ECO2013 (3 decks)

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