Macro Test 3

Front 1

Commercial Banks

Back 1

demand deposit
reserves

Front 2

Fractional Reserve Ratio

Back 2

less than 100%
reserve ratio = r= (total reseves/ demand deposits) = (TR/DD)

Front 3

100% reserve banking

Back 3

all of your deposit in vault (too safe) can a bank with 100% reserves lend out? NO!

Front 4

deposit 100 r= .1

Back 4

lend 90, hold 10 **deposit #'s eventually go to 0**
reserve 100
others 90
total 190

Front 5

BS for a HH

Back 5

Assets Liabilities
auto 200k 800k Mortgage
hous 650k 100k other loans
misc 350k
1.2 mil 900k
300k (diff is your net worth)

Front 6

refer to other examples in notes, beginning with thick black pen

Back 6

blah

Front 7

hey! you will ace this exam!

Back 7

you ARE good enough!
The apple of God's eye!
daughter of the King.

Front 8

Bank's view

Back 8

$1 in DD requires r$ in TR

Front 9

System's view

Back 9

(added up across all banks) $1 in TR requires/supports $1/r in DD

Front 10

m1=DD=1/rTR

Back 10

remember 1/r is the money multiplier

Front 11

the smaller RR is

Back 11

the larget money multplier is

Front 12

Required Reserve Ratio (RRR)

Back 12

the Fed will set a minumin

Front 13

checking accounts

Back 13

high lending because it more accurate

Front 14

Primary tools to regulate and supply r as follows

Back 14

open market operations - fed purch govt securities from public (expansionary

Front 15

Min. RRR

Back 15

banks cant go below so they don't overlend

Front 16

discount rate

Back 16

fed controls is.
disc ^ then Reserve Rate (r) ^

Front 17

Federal funds rate - market dtrmnd

Back 17

fed's signal manipulated not control
Excess^ rate dec.
excess dec. rate^

Front 18

fed have influence on ffr? lots

Back 18

1. mrrr dec ffr dec
2. econ 2 good (want to reduce money supply - fewer g&s open market sale - dries of reserve = ffr^
3. open market purch = ffr dec

Front 19

ffr target

Back 19

basis points ...

Front 20

banks can prefer to borrow from ea other

Back 20

easier

Front 21

ffr target is not an amount, but a..

Back 21

purchase sec(tor?) until it falls.
thermostat stay on till it hits assigned temp - then cuts off

Front 22

ffr now..

Back 22

around 0

Front 23

this suggest banks have a lot of

Back 23

excess reserves

Front 24

Groceryex

Back 24

bank loans are like cheerios - send 2 general mills - sell them - pay bank

Front 25

Probs fed has w/ controlling & supply

Back 25

who else controls it?
1. HH - more $ saved, less $ created
Deposits r the fuel that creates$
2. Banks

Front 26

We know that $ is medium of exchange, store o val, unit of acct..

Back 26

yea, remember that

Front 27

12: money growth and inflation

Back 27

In the long run, how can we expect economy to respond in a certain period of time

Front 28

inflation : piet= (pt-[pt-1])/pt-1)*100 doesn't acct 4

Back 28

rises (gas) & falls(electronics)

Front 29

prices of indiv goods don't rise at the

Back 29

same rate!

Front 30

price level (P) down

Back 30

dollar val ^

Front 31

P ^

Back 31

dollar val down.

Front 32

when prices double

Back 32

carry double the $ for same product

Front 33

Quantity thry of $ - NOMINAL

Back 33

DEMAND 4 $ FUNCTION: Md=KPY
K is a positive constant

Front 34

Carry $10 drink $2

what is the real demand for money?

Back 34

5 drinks

Front 35

1/p refer to 3/21 notes for graph

Back 35

drink 2, dollar costs 1/2 drink

Front 36

if the fed cuts the $ supply,

Back 36

P down

Front 37

The Classical Dichotomy: David Hume

Back 37

In the long run real values are independent of $ supply

we can understand real w/ out referring to nominal

Front 38

Real variables

Back 38

GDP, Consumption, interest rate, wage, xchnge rate , unemployment

Front 39

Nominal variables

Back 39

$ supply, pl, GDP, int rate, wage rate, xchange rate

Front 40

if $ supply doubles, real GDP...

Back 40

stays the same!

Front 41

Money Neutrality

Back 41

when Pl doubles after $supply doubled but real GDP does not change

Front 42

to people 'us' $ means

to world, $ means

Back 42

wealth

convenience

Front 43

My behavior does not depend on $supply in the long run!

Back 43

if fed doubled $supply on a regular day, nothing would change!

Front 44

Stable & blacksmith = 1 mil - stables burn

Currency ruined v. stables burn } which is worse!

Back 44

stables burning b/c that is 1 mil in capital destroyed!!

Front 45

Velocity & Quantity Equation

Back 45

rate at which money changes hands, avg times $1 spent in 1 yr

Front 46

mV=py(nominal gdp)

5000=5*100 burgers

Back 46

V= $ diff from goods(tht show up once) MONEY $ stays and can be respent

Front 47

Growth Rate

Back 47

pie + (change in Y/x)

Front 48

when you hoard, v=

Back 48

0

Front 49

hyperinflation

Back 49

> 50% / mo
no longer serves its functions

Front 50

Inflation tax (hidden, on $ balances)

Back 50

1)raise taxes
2) sell bonds
3)sell bonds to Fed open market purch !!!bridge cost same w/ every option, diff is who pays 4 it

Front 51

fisher effect

Back 51

inflation on interest rate!

Front 52

to fix the fisher effect YOU...

Back 52

being w/ real int rate and add inflation premium

Front 53

change in growth rate of money supply is ...

Back 53

a 1 time change in level of the $ supply

Front 54

why inflation is costly

Back 54

1) pl ^ @ diff rates
2) can't be perfectly anticptd

Front 55

inflation costs

Back 55

1shoe leather costs - nuissance
2menu costs -physical cost of changing prices
3 tax distortions (income thru capital gains/int income
4 confusion in inconvenience
5 arbitrary redistrib of wealth (some assets r good inf. hedges/

Front 56

product marcket (NX)

Back 56

asset market (NCO)

Front 57

fators influence NX

Back 57

1taste 4 foreing produced products
2prices @ home & abroad
3the xchange rate
4relative incomes
5trans costs
6trade barriers

Front 58

NCO=NX

Back 58

0=0 the nations budget restraint!

Front 59

why $ leaves us

Back 59

1 buy gs
2gift-foreign aid
3nco-currency flows tht buy assets

Front 60

nco^

Back 60

when your INVSTNG in them, not borrowing or buying