Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
25 Cards in this Set
- Front
- Back
|
Name three factors that may increase the probability of a financial crisis.
|
1. A sharp, unexpected rise in interest rates
2. Unexpected decreases in overall prices 3. Fall in stock values |
|
|
What describes an increase in debt burdens caused by falling income and prices?
|
Debt deflation
|
|
|
Define financial fragility.
|
The sensitivity of financial position to change in interest rates, incomes, and asset prices.
|
|
|
What is the central feedback loop existing in a debt-deflation crisis?
|
Debt difficulties lead to higher distress sales which leads to more deflation thus furthering distress sales.
|
|
|
According to the imperfection view, what are the three causes of overindebtedness?
|
1. Lack of information about borrowers
2. Lack of judgement capacity from lenders 3. Lack market competition |
|
|
What is an imperfection of individuals?
|
People tend to follow heuristics
|
|
|
What does the high cost of information lead to?
|
Imperfect information
|
|
|
What are three causes of overindebtedness according to the uncertainty view?
|
1. People forget about the past and overemphasize the present
2. People follow convention, social drives 3. Lending norms tend to loosen after a period of economic growth. |
|
|
What is the quantity equation?
|
MV = PQ
|
|
|
Under the QTM, what is said about V and Q?
|
V- the growth of velocity is constant
Q- growth of output is constant |
|
|
What are two causes of inflation according to the QTM?
|
1. Inflation rises because demand > supply
2. Inflation is from rising wages |
|
|
What is the velocity of money?
|
The speed money must circulate in order to complete all transactions
|
|
|
According to the distribution theory of inflation, what is the cause of inflation?
|
Growth of output
|
|
|
What is the central difference between the distribution theory of inflation and the QTM?
|
The QTM does not assume full employment
|
|
|
Name three goals of monetary policy.
|
1. Exchange rate stability
2. High unemployment 3. Price stability |
|
|
What is recognition lag?
|
The time it takes policymakers to realize that a change in the economy's performance has occured.
|
|
|
What is policy lag?
|
The time that elapses from the point when the need for action is recognized and when a legislative solution is enacted.
|
|
|
What is an intermediate target?
|
A target midway between the policy instruments and the ultimate policy goals.
|
|
|
Name two ways the Fed targets interest rates.
|
1. Targeting the Fed Funds Rate
2. Using Open Market Operations |
|
|
What are RR?
|
A tool used for monetary policy
|
|
|
When using open-market operations, how does the central bank know that there is a shortage of reserves?
|
The discount rate is at a low level
|
|
|
If the central bank wants to tighten its monetary policy what should it do?
|
Increase the Fed Funds Rate
|
|
|
How is the interest rate on a primary loan determined?
|
It is the Fed Funds rate target plus a mark up.
|
|
|
Name three ways the central bank can loosen monetary policy.
|
1. Decrease the Fed Funds Rate
2. Decrease the discount rate 3. Decrease the RR ration |
|
|
T or F. Can the Money supply and interest rates be successfully targeted at the same time?
|
False.
|
