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39 Cards in this Set

  • Front
  • Back
According to the solvency/liquidity view, a lower RR would tend to...
Increase open market operations
According to the multiplier theory, a lower RR would tend to...
Increase the money available for lending because of the higher amount of excess reserves
Under the solvency/liquidity approach, which of the following is the main barrier to monetary creation?
The amount of reserves
Under the solvency/liquidity view, does the central bank have control of total reserves?
Under the solvency/liquidity view, what is the amount of monetary base created?
It is a residual of the advances granted by DIs
What is the simplest model of monetary base under solvency/liquidity?
What happens to the shape of the yield curve if expected STi are higher than expected?
The yield curve becomes steeper.
If the slope of the yield curve is positive, this means what with relation to yields and term to maturity?
Yields decline as the term to maturity decreases.
What happens if borrowers increase their supply of LT securities?
LTi will increase
According to the expectations theory, when the yield curve is falling market participants expect what?
Future STir will rall below current STir
Under expectations theory, expectations about future STir depend on expectations about what?
Future income and inflation
If the yield curve was negatively sloped, this would most likely reflect expectations of a combination of future...
Declines in income and inflation
What is expected when the economy is going into expansion?
Rising future interest rates
Some researchers believe the expectations theory needs to be modified to reflect what? (3)
1. Liquidity premiums
2. Preference between ST and LT placement
3. Tendency of borrowers to prefer LT securities
Preferred habits (segmentation theory) refers to what?
Preferred maturities for borrowers and lenders that may lead to market segmentation
If expected future short-term interest rates are equal to current short-term rates, the liquidity premium will
Make long term rates higher than current short term rates
Name two advantages of municipal securities.
1. The credit risk is very low
2. The income is tax exempt
According to expectations theory, what shape should the normal yield curve be?
According to expectations theory, what shape is most likely to be associated with business cycle peaks? (i.e. late part of expansion into recession)
According to the liquidity preference theory, what shape should the normal yield curve be?
What hypothesis does the expectations theory make?
ST and LT securities are perfectly substitutable
According to the New Consensus, what is the role of financial markets?
Allocate investment toward savings
According to the New Consensus what is the best way to promote investment?
Promote thriftiness
What is the strong version of the efficient market theory?
All information (including insider info) is used to determine the market prices of securities.
What are three roles of banks under New Consensus?
1. Fix asymmetry of info
2. Intermediary between savers and investors
3. Expert judges of credit worthiness
Whats is the role of financial markets according to the Post-Keynesians?
Makes illiquid assets liquid
According to Post-Keynesians, does saving promote investment?
No. Higher savings means lower consumption which leads to lower profits for firms.
What is the difference between funding and financing?
Finance allows the creation of income (production) while funding sustains the acquisition of income.
What purpose does the difference between funding and financing have? (3)
1. To explain how aggregate income is generated
2. To explain why I must come before S. S cannot lead to I
3. Show how the New Consensus view is wrong to promote S
According to Post-Keynesians, what is the role of banks? (3)
1. Experts in judging credit worthiness
2. Best at financing stage
3. Main suppliers of monetary instruments
According to the exchange view, what is money? (3)
1. Money is what money does
2. Unit of payment, means of exchange, store of value, unit of account
3. Mainly a medium of exchange
According to the exchange view, what are the origins of money?
Money emerged from market transactions.
According to the exchange view, what was the first form of money?
What does dematerialization mean?
A process that progressively transformed monetary instruments into immaterial things.
According to the Alternative view, what was the first form of money?
According to the Alternative approach, what are the three characteristics of money?
1. Instantaneous maturity
2. Circulates at PAR
3. Impersonal
What is the nature of monetary instruments?
It is a financial instrument
According to the Alternative view, what main function of money must be present for money to be detected?
Unit of account
According to the Alternative view, where does money come from?
Money emerged from the need to pay a religious authority.