Term
| c.1 Purchasing power parity |
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Definition
| the idea of 1 price, that if looking at 2 countries with different exchange rate and 2 exact products after taking into account exchange rate differences they would be the same price all else equal. if you where to take the prices over each other you would equal the exchange rate. |
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Term
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Definition
| the amount one dollar changes hand. Therefore it tells how much each dollar added effects the economy since of lending it multiples |
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Term
| c.1 keynesian view of macro policy |
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Definition
| they have the idea that the private sector is not stable but the govt is so the govt should have an active role in the economy to bring stablity to the market through onetary policy to bring stablity to business cycles and etc |
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Term
| c.1floating exchange rate |
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Definition
| this is what the US is on. the idea that the market determines its value and that the govt doesnt play an active role in minupulating its price. price is determined by the supply (more brings down the price) and demand( more lifts the value) |
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Term
| c.2 policy the federal reserve during paul volcker and illistrate philips curve diagram |
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Definition
| to stop inflation the fed lift interest rates which worked but caused unemployment to go up but in time inflation and unemployment went down. graph is of the philips curve and long run curve which is a up and down line. points go around in a circle |
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Term
| c.3 desribe the model in that was talked about in class and tell why people hold onto money |
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Definition
| the model is the traingler model which has time on bottom axis, and moeny help on y axis. the reason why people This is effects other things because it determines the velocity the more people spend and not save increases the velocity of money. key eqaution is spaure root over yc/2r,therefore if income rises then money demand goes up, if c or oppertunity cost goes up then people will hold onto money, if rates goes up people will put it in the bank and save. |
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Term
| c.4 illustrate the supply and demand for the chinese yuan relative to the dollar, explain why china follows its current policy for the yaun, and why the US has asked them to change it |
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Definition
| it can be shown on the supply and demand curve with price under eq. china follows a fixed currency to keep its value lower than it should this in turn causes their exports to be very cheap which makes them the go to place for goods, the us has asked them to change it because us producers cant compete in prices compared to them giving them an unfair advantage. this is done by them buying foriegn currency in turn increasing supply and lowering their value |
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Term
| c.5Explain the advantages and disadvantages of monetary policy discretion |
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Definition
ad: allows the fed to be flexible on what to do that is best for the situation
dis: what seems to work now doesnt mean it will work later |
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Term
| c.5Explain the advantages and disadvantages of monetary policy gold standard |
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Definition
ad: when the supply of gold is low then they decrease money supply, it easy to see what the fed should do
dis: with gold held constant its easy for it to be over valued or under, gold could run out quick,
subject to supply shocks |
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Term
| c5Explain the advantages and disadvantages of monetary policy Taylor rule |
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Definition
| adv: clear cut rule, predictable, its when looking at inflation, desired inflation, GDp gap, eq fed funds rate dis: the real federal funds rate grows more when inflation increases |
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Term
| c.6 how is the us able to pay for the goods that it imports. mention three different categories in the balance of payments |
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Definition
the trade balance is negative
-but is made possible because of the foreigh held us assets so other countries are investing in the US
-country has more services coming into the us than going out
-income |
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Term
| C.7 describe one major feature of the dodd frank law explain what effect this will have on the future of the financial system |
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Definition
| curb predatory lending practices , which created the consumer financial protection bureau which stop banks from charging very high interest rates, high hidden bank fees |
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Term
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Definition
| the rate that banks charge each other for a overnight loan to meet their deposit |
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Term
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Definition
| troubled asset relief program- was intendedto loan banks extra reserves then they could loan out the money to the public which would push the economy going |
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Term
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Definition
Like insurance for a loan, you pay a preiume on a loan then if that loan defaults then you would get your money back.
-problem the insurance has to have the money to pay if loan defaults
- they werent regulated like normal insurance firms |
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Term
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Definition
the idea that since FDIC insured that peoples money would be safe people stop caring whether or not the banks were risky with their money
-therefore the fed created regulation to watch the banks instead |
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Term
| b.2 list the fives items that are checked during a bank examination |
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Definition
camel
-c, capital adequacy
-asset quantity
-management quality
-earnings
-liquidity
-sensitivity of market risk |
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Term
| b.3 why were savings and loans in serious trouble beginning in the late 1960's 1970's |
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Definition
| because interest rates were so low in 60's then they shoot up in 70 due to inflation. so they ended up with all these loans with were only paying 4% interest but were paying 5% to depositer because the US kept them from charging anything over so banks had a hard time attracking new deposit so they could make new loans to cover the loses |
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Term
| b.3 why did people have such a hard time paying their mortgages taken out around 2005 (when they could before) |
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Definition
-many of them had variable interest loans but it didn't matter before because they would refinance before rates changed
-but after the crash banks weren't loaning any money so people couldn't get out of the mortages and were lift with high interest rates |
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Term
| b.3 why did lender think they could repay the loans in 2005 |
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Definition
| they thought at worst they could refinance and use some of the money from increase value of the house to help repay. so house prices had to keep going up for it to work, at the end they didnt care because they would just sell it |
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Term
| b.3 why did buyers of mortgage backed securities underestimate the risk involved |
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Definition
-they had top ratings, and were rated low risk
-the thought was house prices would always go up
- at worst they could just sell off the security to someone else |
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Term
| why did lenders think it was safe to lend to fannie mae and freddie mac |
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Definition
| because they were backed by the govt |
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Term
| b.4 list the members of the federal open market committee by job title and what the committee does |
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Definition
7 of the board of governors at the fed
the president of the NY fed
4 alternating presidents of the non NY feds
with a 1 year term
-the FOMC buys and sells to control the supply and demand for the fed funds rate |
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Term
| b.5 how does umpqua bank try to make its self different than other banks |
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Definition
it does it by taking out the bank factor
not having tellers, instead making it feel like a store
make it a hangout selling coffee |
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Term
| b. 6 draw the balance sheet of a bank that has 132,000 in deposits a 10% reserve ratio, a capital/asset ratio of 7% and a reserve for credit loss equal to 3% of gross loans |
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Definition
assets:
reservers 13,200
gross loans 132,716
reserver credit loss 3981
net loans 128,735
lia:
dep 132,000
equity
capital 9935
total 141935
got gl and reserves credit loss
nl=Gl-RCL
NL=GL-.03GL
and solve |
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Term
| b.7 in the last 2 years banks reserves have done what, increase or decrease |
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Definition
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Term
| b.8 what will the banks income statement be after these transactions |
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Definition
| income statement only has things that are making money or money spent to make money 40 interest income 20 interest expense 7 fee income 40 reserve credit loss 10 employee expense |
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Term
| b.9 suppose the required reserve ratio is .1 and the currency ratio (currency/ demand deposits ) is .72. what should the fed do if it wishes to increase the money supply by 1,200 million dollars. |
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Definition
| rr + 1 / CR+ RR = a target/a = 894.54 |
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Term
| a.1 if there is two types of money with the same value but different intrinsic value, what type of money will be spend, whats the law that is with this. |
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Definition
greshams law stating that bad money will drive out good money
because people will spend the bad money instead of the good money |
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Term
| a.2 list the components of M1 |
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Definition
checking accounts
cash
travelers checks |
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Term
| a.3 list the three functions of money |
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Definition
store of wealth
medium of exchange
standard of value |
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Term
| a.4consider a barter system where 20 pieces of asparagus can be traded for one cabbage and 6 pieces of broccoli can be traded for 1 cabbage, and 11 pieces of asparagus can be traded for 1 broccoli. give example where it is possible to make profits by abitrage in this market. assume that you start with 720 cabbages and will end up with cabbage |
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Definition
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Term
| a. 5 name of the basic silver coin of the roman empire |
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Definition
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Term
| a.5 how long would it take for a common laborer to make a Denarius |
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Definition
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Term
| a.5 in the later years of the roman empire how did the govt increase money supply |
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Definition
debasing,
this is melting the coins down and using less precious metals and add less expensive to fill therefore they could make more money |
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Term
| a.6 explain a situation where long term bond rates would be less than short run bond rates |
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Definition
| if interest rates were plan on going down, |
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Term
| a.7 draw example of a goldsmith turned bank balance sheet, make up the # |
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Definition
assets
gold 200
loans 300
Lia
dep 500 |
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Term
| a.7 describe the risk faced by an old bank, and descride whether or not modern us banks face the same kind of risk |
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Definition
-bank run 2 ways, a lot of bad loans, or to many people take out cash more the reserves have people panic
-us banks now have deposit insurance called FDIC which protects depositors |
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Term
| Consider the time period when the us was on the bimetallic standard, if the price of gold int he market started to fall below the offical mint price |
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Definition
| people would start to sell back their gold to the mint and then the price would rise back to the mint price |
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Term
| A8 Consider the time period when the us was on the bimetallic standard, if the price of gold rose above offical mint price |
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Definition
| then people would melt down and sell it in the market causing increase in supply lowering the price |
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Term
| a 8 what large amounts of silver were minded in the us in the late 1970 how did that affect the political debate over US monetary policy |
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Definition
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