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;
12 Cards in this Set
- Front
- Back
|
What are the main functions of Central Banks? |
- Last Resource Lender - Bank of Banks - Monetary Policy Conduction - Currency Supplier - Supervise the financial transactions - Hold the nation´s gold and foreign currency reserves |
|
|
What are the disposable mechanisms for a Central Bank to run the monetary policy? |
- Policy Rate - Change the reserve requirements - Open-Market Operations |
|
|
What is the Fisher Effect? |
Nominal Interest Rate = Real Interest Rate + Expected Inflation |
|
|
What is the Ricardian Equivalence? |
There will be an increase in private savings in anticipation of the need to repay on principal government debt |
|
|
What is an absolute advantage? |
A country has an absolute advantage if it is able to produce the good at a lower cost than the other country. |
|
|
What is a comparative advantage? |
A comparative advantage occurs if the production of a given good presents lower opportunity costs than the production for the same good for another country. Regardless of absolute advantage, in any case in which two countries have different opportunity costs toward more than one good, there will be a trade opportunity between them.' |
|
|
Considering the table below, what the production figures for each of the countries signals?
England 100 110 Portugal 90 80 |
Considering the production of both goods, England has an absolute advantage compared to Portugal. Nevertheless, Portugal has a comparative advantage in the production of wine, opportunity cost for the production of wine in Portugal (80/90) and for England (110/100). Thus, Portugal has a lower opportunity cost in wine production. |
|
|
What are the differences between the Ricardian and Hecksher-Ohlin models of trade? |
The production in the Ricardian model is established by the comparative advantage based on the opportunity cost of production for each good, while the Hecksher-Ohlin model is based on the less scarce and costs incurred given two factors of production: Capital and Labor. i.e.: a country with a capital-intensive production, will focus on producing a capital-intensive good. |
|
|
Differentiate: - Free-Trade Area - Customs Union - Common Market - Economic Union - Monetary Union |
Free-Trade Area: No barriers to import export Customs Union: FTA + common-set of trade restrictions with non-members Common Market: FTA + CU + barriers of L and K between country members are dissolved Economic Union: FTA + CU + CM + Common Institutions and Economic Policy Monetary Union: All of the Above + Monetary Union |
|
|
An equilibrium of the balance of payments (BP) results on the following equation: X - M = Private Savings + Govern. Savings - Domestic Inv. |
IMF - Exchange Rate Stability, international monetary cooperation, provide resources to country members with balance of payments problems World Bank - low-interest loans, interest-free credits, assists in the establishment of public-private partnerships WTO - Enforces multilateral trade agreements |
|
|
Nominal Exchange Rate = Domestic Currency / Foreign Currency Real Exchange Rate (D/F) = Nominal Exchange Rate (d/f) * (Foreign CPI/Domestic CPI) |
Formal Dollarization - The country uses the currency of another country |
|
|
Exchange Rate Regimen Currency Board - Exchange domestic currency for a specified currency for a fixed exchange rate Peg Arrangement - A country pegs its currency within margins of ~1% versus another currency Pegged Exchange Rate - Permitted fluctuations within a specific currency or target zones Crawling peg - Exchange Rate is adjusted periodically |
Absortion Approach - National Income must increase relative to domestic expenditure to decrease a trade deficit |
