Macroecon chapter 12

Question 1

Assets in the economy (2)

Answer 1

• Money
• Bonds

Question 2

Bonds definition

Answer 2

Interest payment overtime

Question 3

Present value formula

Answer 3

R1/(1+i) + R2/(1+i)^2 + … + RI/(1+i)^T

Question 4

Coupon bond

Answer 4

Coupon (c) = %face value (FV) = Coupon rate

Question 5

Maturity time

Answer 5

C + FV are paid

Question 6

Present value / Price bond formula

Answer 6

(C[1 - (1+i) ^-t])/i + FV(1+i)^-t

Question 7

Link between Price bond and interest rate

Answer 7

Negative

Question 8

Link between price bond and money demand

Answer 8

Positive

Question 9

Link between price bond and bond demand

Answer 9

Negative

Question 10

Link between interest rate and bond yield

Answer 10

Positive

Question 11

Bond yield (Yb) formula

Answer 11

Coupon gain + capital gain

Question 12

Motivation for firms and household to demand money

Answer 12

MD = f(transaction, precaution, speculation)

Question 13

MD and interest rate relation

Answer 13

Negative

Question 14

MD and real GDP relation

Answer 14

Positive

Question 15

MD and price level relation

Answer 15

Positive

Question 16

Δi in MD curve

Answer 16

Movement along the curve

Question 17

ΔY and ΔP in MD curve

Answer 17

//shift left or right

Question 18

Why is MS a vertical line?

Answer 18

MS is exogenous

Question 19

MS and interest rate relation

Answer 19

Negative

Question 20

MS and Consumption relation

Answer 20

Positive

Question 21

MS and investment relation

Answer 21

Positive

Question 22

MS and AE relation

Answer 22

Positive (shifts up)

Question 23

MS and AD relation

Answer 23

Positive (shifts to the right)

Question 24

Monetary transmission mechanic

Answer 24

ΔMD/ΔMS => Δi => ΔC/ΔI/ΔNx => ΔAE => ΔAD => ΔY

Question 25

Why is the slop of AD negative (3)

Answer 25

• Wealth effect
• Substitution effect (through relative price)
• Interest rate effect

Question 26

Interest rate effect

Answer 26

ΔP => ΔMD = Δi = ΔT/ΔC

Question 27

Money neutrality at LR

Answer 27

ΔMS will not lead to ΔYp

Question 28

Hysteresis

Answer 28

• ΔMS => ΔY => ΔYp
• ΔMS => Δi => ΔI => Δtech => ΔYp

Question 29

How can monetary policy impact the long run GDP (Yp)

Answer 29

ΔMS => Δi => ΔAD => ΔUrate => ΔHK => ΔYp

Question 30

Effects of monetary policies at SR (2)

Answer 30

• Depends on the slope of MD and ID
• If MD tends to be vertical and ID tends to be horizontal, Δi will lead to higher ΔY

Question 31

Keynesians policies

Answer 31

MD horizonal
ID vertical
Small ΔY

Question 32

Monetarist policies

Answer 32

MD vertical
ID horizontal
Higher ΔY