Fichas
Macro Econ Final
Fichas del conjunto (70)
- 1What are the 3 functions of $?-Medium of Exchange
-Unit of account
-Store of Value - 2What are the 2 kinds of money that can exist in an economy?-Commodity $: A Commodity with intrinsic value
-Fiat $: Money without intrinsic value. Used as $ cause of a government decree - 3What is the $ Stock?The amount of $ circulating in an economy
- 4What elements are included in the money stock?-Currency: Liquid that you carry on you
-Demand Deposit: $ You keep at the ban in checking account - 5What does the BIG 5 refer to?the 5 main Canadian commercial banks
-BMO
-CIBC
-TD
-Scotia Bank
-Royal Bank - 6What is the goal of the Central Bank?Act in the nations interest
- 7What are the 4 Jobs done by the Bank Of Canada?- Control the money supply
- Banker for commercial banks
- Banker for Gov.
- Issue Currency - 8How does the Bank of Canada influence the interest rate in an economy?An increase in the money supply would bring more people to save and the interest rate would rise (Vice versa)
- 9What are reserves, in a bank?Deposits the bank has received, but hasn't loaned yet
- 10In a fractional-reserve banking system, what are liabilities?Amount of $ the bank has received but not loaned
- 11In a fractional-reserve banking system, what are assets?Amount of $ the bank has loaned and is nor receiving interest from
- 12In a fractional-reserve banking system, what is the reserve ratio?The fraction of $ the bank is obligated to keep in the bank as reserve
- 13In a fractional-reserve banking system, what is the money multiplier?The amount of $ the bank generates with every dollar of reserve
- 14In a fractional-reserve banking system, how is the bank capital earned?by issuing equity and debts
- 15How does a bank generate profits?-Makes loans
-Holds reserve
-Buys bonds
-Buys stock - 16What is the money multiplier?The amount of money the bank generates with each dollar of reserve
- 17What occurs if a bank's assets fall below the amount of liabilities?There is insolvent: The bank is unable to reimburse debt and deposits
- 18What are capital requirements?The minimal amount of capital mandatory in a bank, by law
- 19What are the Bank of Canada's 2 monetary control tools-Changing overnight rate
-Doing open market operations - 20What is B.O.C's interest rate?-Bank Rate: Interest % the B.o.C charges on loans it makes to commercial banks
-B.O.C charges I% on loans to the commercial banks
-B.O.C pays (I%-0.5%) if Comm. Bank has + checking balance - 21What is the overnight rate?I% on short term loans between commercial banks
- 22How does the Overnight% contribute to control the $ supply?-If ON% increases, so will the bank %.
- Increase in the bank % discourages banks from borrowing at the B.O.C
-So comm. banks don't increase their reserves (thus $ supply) - 23What 3 open market operations contribute to the control of the $ supply-Quantitative easing
-Foreign exchange market operations
-Changes in reserve regulations - 24Define Quantitative easing:Purchase or sale of Gov bonds with long term maturities
Goal: Control of $ Supply by B.O.C - 25Define Foreign exchange market operations:Purchase or sale of foreign currency by B.O.C
Goal: Control of $ Supply by B.O.C - 26How does a change in reserve requirement affect the $ supply?-Increase reserves: reduce number of loans
Decrease reserve: make more loans - 27What are the two problems that the B.O.C while trying to control the $ supply?- Can't control household deposits
-Can't control the amount of $ comm. banks lend - 28What is the relation between price level and monetary value?-Increase P.L = decrease M.V
-Decrease P.L= Increase M.N - 29What factors affect the demand of $ in an economy?-Liquidity preference
-Price Levels - 30Quantity Theory is:Amount of $ in an economy determines price level.
Growth rate of the amount of $ in an economy determines the inflation % - 31What is the immediate effect of money injection?An excess of money supply
- 32How does the money supply find an equilibrium after a monetary injection?-People will increase their purchases &/or deposits in savings accounts
- *Qty. of G&S produced wont change*-
-The demand for more G&S will grow
-Price levels will rise
-The demand for $ will increase again
-Equilibrium - 33How doe the classical dichotomy suggest the variables should be separated in an economy?-Nominal
-Real - 34What does the monetary neutrality theory propose?That [in the long run] the real variables won't be affected by changes in the money supply
- 35What does the velocity of money refer to?The number of times a s dollar changes hands in a year
- 36How do you explain the inflation rate using the velocity theory?-Cause V is stable, when B.O.C changes M, P&Y proportionally change
-Monetary neutrality: Y is a real variable so it won't be affected by change in M
-So if M increases, P increases as well
=Inflation - 37What is an Inflation tax?The revenue that the Gov. raises by creating $
- 38What is one way the Gov. can put an end to inflation?By implanting fiscal reforms (ex: cut his spending)
- 39What does the Fisher effect state?Nominal Interest Rate moves 1:1 with the Inflation Rate
RI%=NI%-Infl.% - 40What are the 3 costs of inflation?-(false) Fall in purchasing power**
-Shoeleather costs: resources wasted when inflation has people keeping $ @ the bank
-Menu costs: Costs of changing the prices - 41Law makers often omit inflation. What types of income are affected by this?-Capital gain: Income taxes overlook inflation correction on income from item resale
-Interest income: after tax RI% is much lower than it would have been if Infl%=0 - 42Interest must be paid on a loan. How does hyperinflation affect The Borrower?It's easier for him to reimburse seeing as hyperinflation has increased his real wage
- 43Interest must be paid on a loan. How does deflation affect The Borrower?It's harder for him to reimburse seeing as deflation has decreased his real wage
- 44What two markets can be found in an open economy?-World Product market (for G&S)
-World Financial Market (for Capital Assets) - 45Net Export determine it's what about a country in an open economy?Weather it is a seller or a buyer
- 46Which 6 factors influence the trade balance?-Tastes of the consumers
-Prices of G&S
-Exchange rates
-Consumer's incomes
-Costs of transportation of the G&S
-Gov. policies r/a international trade - 47Which 4 variables influence the Net Capital Outflow?-RI% on domestic assets
-RI% on foreign assets
-Perceived risk r/a holding assets abroad
-Gov. Policies - 48In an open economy, what constitutes a country's national savings?Domestic Investments + Net Capital Outflow
- 49Which international transaction depends on the Nominal Exchange rate?Currency exchange
- 50What is the difference between the appreciation and the depreciation of a currency?-Appreciation: Currency who's value on the market has increased. Less of it is required to purchase another currency
-Depreciation: Currency that has lost value on the market. It takes more of it to purchase another country's currency - 51Define real exchange rateThe rate at which a person can trade the G&S of a country for the G&S of another country
- 52What is the purchasing-power parity?A theory wherein one unit of a currency should be able to buy the same amount of a G&S here and abroad
-According to this theory: NX% between two countries should reflect their different price levels - 53What is the law of one price?Idea that states that a good should sell at the same price in all locations
- 54If the law of one price is not applied, what is at risk of happening?There will be more arbitrage
- 55Define arbitrage:The action whereby a person (or firm) buys a good in one location at a certain price but sells it in another location at a higher price to increase it's profits
- 56What are the limitations of the PPP?-Not all goods are perfect substitutes
-Many G&S aren't easily traded - 57Define small open economy with perfect capital mobility:a SOEWPCO identifies countries who's actions on international markets will only have a negligible impact on prices and who has full access to the world finacial market
- 58What is the interest rate parity, and how does it differ from the purchase price parity?The I%P is a theory that the RI% on comparable assets should sell at the rate in all countries with open economies with perfect capital mobility
- 59What are the two limitations of interest rate parity?- The risk that a country will default (even if interest is already quite high
-Financial assets in different cities aren't the same (the don't necessarily have the same values) - 60A macroeconomic theory of a small open economy takes three things as given. What are they?-GDP
-Price Level
-Real Interest Rate - 61What is the goal of a macroeconomic model of a small open economy?Highlight the forces that determine an economy's trade balance and Exchange rate
- 62Which elements are taken into account on the international market for loanable funds?-Savings
-Investments
-Net capital outflow - 63Which elements are taken into account on the international market for currency exchange?-People who want to trade domestic currency for foreign currency
-Exchange rate - 64In a small open economy, how are national savings computed?S= I + NCO
- 65True of false: the quantity of loanable funds supplied by savings and the quantity demanded for invested must for the market to move forward?False.
If there is surplus, it will be used to pay the NCO
If there are shortfalls, they will be met by foreigners' savings of domestic currency - 66What id the driving force of the market for foreign currency exchange?The people's desire t purchase foreign goods and services but get paid in their own currency?
- 67Define the Real Exchange Rate?The price one must pay to purchase foreign currency. It balances the supply and demand in the market of foreign currency exchange
- 68How does appreciation differ fro appreciation?Appreciation is when the value of the domestic currency increase, compared to the one of foreign currencies.
Depreciation is when the value of the domestic currency decreases, compared to the one of foreign currencies. - 69Which element links the market for foreign currency exchange and the market for loanable funds?The Net Capital Outflow
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