ECON 437 FINAL Prep | 100% Correct Complete
Solutions
Real Exchange Rate formula (Absolute PPP)
RER = (Et*P^for) / P^dom
Phillips Curve formula
π = π^ex - β(ut - u^n) + εt
Balance sheet for the Central Bank of a country
assets | liabilities
Foreign currency | deposits of private banks
Treasury bonds | outstanding domestic currency
Scott Bessant
Treasury secretary
Gerome Powell
Chairman of the Fed (head of the monetary authority)
What can the Fed do
-monetary authority
-print more money
-give money to the treasury
-Treasury bonds fund government activities
what is the cost of liquidity
, -the opportunity cost of investing in financial assets (interest/yield)
-incr money supply, decr interest rate
systematic risk
risk that spreads to the whole system
In 2008, how were European banks affected by financial crisis in the US
-When US mortgage-backed securities failed, banks in Europe were hurt because they held these
bonds.
-tax revenue decr when unemployment incr
-Other countries' treasury bonds fell in value
insolvent
-when assets < liabilities
-Fed bailed out banks by buying shares of the banks to increase their assets
what drives demand for currency
-financial assets (markets)
-this also determines the values of currency
inflation
The change in prices over time
Asset model formula
Y = C + I + G + NX
How long does it take for the asset model to adjust
Solutions
Real Exchange Rate formula (Absolute PPP)
RER = (Et*P^for) / P^dom
Phillips Curve formula
π = π^ex - β(ut - u^n) + εt
Balance sheet for the Central Bank of a country
assets | liabilities
Foreign currency | deposits of private banks
Treasury bonds | outstanding domestic currency
Scott Bessant
Treasury secretary
Gerome Powell
Chairman of the Fed (head of the monetary authority)
What can the Fed do
-monetary authority
-print more money
-give money to the treasury
-Treasury bonds fund government activities
what is the cost of liquidity
, -the opportunity cost of investing in financial assets (interest/yield)
-incr money supply, decr interest rate
systematic risk
risk that spreads to the whole system
In 2008, how were European banks affected by financial crisis in the US
-When US mortgage-backed securities failed, banks in Europe were hurt because they held these
bonds.
-tax revenue decr when unemployment incr
-Other countries' treasury bonds fell in value
insolvent
-when assets < liabilities
-Fed bailed out banks by buying shares of the banks to increase their assets
what drives demand for currency
-financial assets (markets)
-this also determines the values of currency
inflation
The change in prices over time
Asset model formula
Y = C + I + G + NX
How long does it take for the asset model to adjust
