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48 Cards in this Set
- Front
- Back
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You read in The Financial Times a story that explains that market interest rates are increasing due to increased global political tensions. What impact will this have in terms of the loanable funds model?
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The quantity demanded of loanable funds in decrease causing movement up the demand curve of loanable funds.
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A story in The New York Times describes how firms are deciding to cut funding of projects and thus borrowing less. In terms of the loanable funds model, which of the following most likely happened?
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Interest rates increased causing a decrease in the quantity demanded of loanable funds.
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According to the assigned readings, a decrease in the quantity supplied of bonds is also:
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a decrease in the quantity demanded of loanable funds.
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According to the assigned readings, if the market interest rate is above the equilibrium interest rate, what will be the result in the loanable funds market and the bond market?
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There will be a surplus in the loanable funds market and a shortage in the bond market.
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You read in Der Spiegel, the German newspaper, that due to increased political stability across Europe the riskiness of German bonds has decreased. What impact will this have on the German bond market and the loanable funds market in Germany?
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Demand for bonds will increase and the supply of loanable funds will increase.
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You read in the Financial Times that due to recent discoveries of natural gas, wealth levels in Bolivia are expected to increase rapidly. How might this impact corporate capital budget decisions in Bolivia and why?
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As the supply of loanable funds increases due to the increase in wealth, market interest rates will fall and thus more corporate projects will be funded.
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China has recently greatly restricted Google searches. Many fear this will drive up information costs in the bond market in China. According to the assigned readings what can we expect to see in terms of bond market in China from this?
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Bond prices will fall as the demand for bonds decreases.
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The Fisher Effect refers to what?
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How inflationary expectations impact market interest rates.
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In early March 2013 the DJI broke through 14,000 for the first time since the onset of the global financial crisis that started in 2007. If market participants expect stock market gains to continue, what impact will this have on the bond market, according to the assigned readings?
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Demand for bonds will fall, pushing bond prices lower and market interest rates or yields higher.
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As described in the assigned readings, according to the Life-Cycle explanation of savings, which of the following people are least likely to be savers?
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Buz, a 71 year old retired college professor.
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You read in the Milwaukee Journal-Sentinel that the State of Wisconsin is going to have to issue bonds to fund its growing budget deficit, while at the same time out-of-state savers are pulling their savings out of Wisconsin banks. You determine the first affect will be larger than the second. According to the Loanable Funds framework, what do you think will happen to interest rates in Wisconsin and why?
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Interest rates will rise as the demand for loanable funds increases more than the supply of loanable funds decreases.
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If businesses expect lower Net Present Value on their projects while at the same time consumer wealth levels are falling, what will happen to interest rates in terms of the loanable funds model?
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Change in interest rates is undetermined as the demand for loanable funds and the supply of loanable funds are both falling.
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The State of Ohio has decided to partially subsidize business hiring in the state. Firms MUST pay for the rest of the labor costs not covered by the subsidy. At the same time household wealth levels across the state are falling. What will happen to interest rates in the state of Ohio according to the loanable funds framework?
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Interest rates will increase as the demand for loanable funds increases while the supply of loanable funds decreases.
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Recently the Times of London reported that the Bank of England was greatly expanding its quantitative easing programs. This is an expansionary monetary policy move. The Times also reported a small increase in British consumer confidence. If the size of the monetary policy action is bigger than the change in consumer confidence, what do you expect will happen to interest rates and bond prices in England?
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Interest rates will fall and bond prices will increase.
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In order to end political unrest the Italian government significantly increased its social spending requiring it to greatly increase its amount of borrowing. At the same time, the European Central Bank that sets monetary policy for Italy was pursuing an expansionary monetary policy. If the Italian government borrowing was much larger than the ECBs monetary policy intervention, what do you expect will happen to bond price and interest rates in Italy?
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Bond prices will fall and interest rates will increase.
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One of the impacts of the Arab Spring is that Libya is able to access the global financial markets. This will mean an increase in the number of foreign borrowers in Libyan financial markets as well as a large increase in the level of household wealth in Libya. From this, what you expect to happen to market interest rates and bond prices in Libya if the first change is smaller than the second?
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Interest rates in Libya will decrease and bond prices will rise.
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You read in the Wall Street Journal a story that describes how the “Fisher Effect” is pushing down bond prices in the United States. What is happening in terms of the Loanable Funds framework in US markets?
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The demand for loanable funds is increasing, while the supply of loanable funds is decreasing.
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If the demand for bonds is increasing, what is happening in terms of loanable funds?
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The Supply of Loanable funds is increasing.
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Which of the following best explains why Keynes believed the aggregate supply curve was vertical during the late 1930s?
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Surpluses in input markets resulted in output increasing without inflation.
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In the traditional aggregate supply curve described by Keynes when did inflation occur?
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When the economy was at full employment, but spending continued to increase.
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In the modern rational expectations version of short run-long run aggregate supply/aggregate demand curve framework, what impact will a dramatic increase in the price of oil have in a country that imports a great deal of oil?
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The price level will increase and the level of real output will fall as the economy suffers a negative supply shock.
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You read in the Wall Street Journal that household spending in the United States is increasing but inflationary pressures remain low. What impact will this have in terms of SRAS-LRAS/AD model and in terms of Loanable Funds Model?
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Aggregate demand is increasing, the Short Run Aggregate Supply curve is very flat, and thus the demand for loanable funds will increase.
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According to the assigned reading, which of the following are the same in the Modern or Rational Expectations version of Short Run-Long Run Aggregate Supply/Aggregate Demand and the Keynesian 3-part Aggregate Supply/Aggregate Demand framework?
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They both agree on what shifts the aggregate demand curve.
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How do the followers of John Maynard Keynes explain the ending of the Great Depression?
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Expansionary fiscal policy.
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Which of the following is most closely associated with the horizontal portion of the Keynesian aggregate demand curve?
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Sticky prices
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You read in the New York Times that due to recent snow storms on the east coast, shipments of US exports to Europe will be delayed. What impact will this have on aggregate demand and why?
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Aggregate demand will decrease since net exports will be decreasing
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In 1943 where was the US economy in terms of the Keynesian Aggregate Supply curve and why?
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On the vertical part as all of the economy's resources were being used to fight World War II.
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According to the Mishkin assigned readings how does the United States government fund the majority of its budget deficit?
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Issuing of bonds.
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If the Fed wants to lower interest rates, what should it do?
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Buy government bonds and thus increase bank reserves.
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Which of the following correctly describes the Fed Funds Rate?
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It is the interest rate banks charge on loans they make to other banks.
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You read in the Toronto Star that the Bank of Canada (the Canadian central bank) is going to announce an explicit inflation target. Why might the Bank of Canada want to do such a thing?
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It hopes to lower nominal interest rates thanks to the Fisher Effect.
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You read in the Financial Times that the “Federal Open Market Committee will meet next week to decide on a future policy moves.” What is about to change?
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The target for the Fed Funds Rate.
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Which of the following best summarizes Quantitative Easing?
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The Fed has become the buyer of last resort in addition to being the lender of last resort.
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Why is it so difficult for the European Central Bank to change monetary policy?
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It operates on consensus.
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Nigel is a bit confused about the structure of the Bank of England. Which of the following correctly describes the BoE’s structure?
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The Bank of England is owned by the British government and accountable to Parliament, but independently conducts monetary policy for the Great Britian.
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According to the assigned readings, some have criticized the Bank of Japan for its actions during the recent financial crisis. Which of the following correctly characterizes this criticism?
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Many complain that the Bank of Japan did not expand its balance sheet nearly as much as the Federal Reserve did during the crisis.
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During a recent trip to Cleveland, Tami visited the Federal Reserve Bank of Cleveland. What did Tami visit?
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A bank for banks that is part of the central banking system in the United States.
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Toby is confused as to what asset bubbles are. What do you tell him?
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Explain that an asset bubble is the irrational increase in the market price of an asset and that when asset bubbles pop the usually result is a financial and economic crisis.
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If Canada were to return to the Gold Standard and a new discovery of gold was found in the Yukon, what would be the most likely outcome for the Canadian economy?
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Inflation as the amount of money in Canada would increase.
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During the interwar period many countries pursued mercantilist policies. What does this mean?
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In the 1920s many nations attempted to export more than they imported.
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Eugene is confused as to the sequencing of events in global financial markets. Which of the following are in correct chronological order?
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Gold Standard, World War II, Bretton Woods.
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Ed is reviewing over global financial market operations. He is unclear as to why Bretton Wood, or the Bretton Woods System, ended. What do you tell him?
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Explain that inflation in the United States and the rigidity of the system resulted in the end of Bretton Woods.
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Country A keeps the value of its currency constant in terms of Country B’s currency, but Country A will adjust the value of its currency in terms of Country’s B currency when economic conditions warrant a change. Country A has what type of exchange rate regime?
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Crawling peg.
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During the 1980s the British had a Target Zone exchange rate regime against the German Deutsche Mark. What does this mean?
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The exchange rate between the British pound and Deutsche Mark was determined by market forces within limits.
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For many years Hong Kong had a currency board with the US dollar. What does this mean?
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Hong Kong currency was issue only if the Hong Kong authority could convert the HK currency for the US dollar.
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Randy is bit confused over how global financial markets work today. He does not understand how the value of the dollar is determined in terms of the Euro. Which concept be the proper one to explain this to Randy?
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Manged float.
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Under what conditions is a long-term fixed exchange rate useful?
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Two countries are going to establish a monetary union.
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Robert Mundell argued that countries can have one currency if they:
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Have similar economic systems
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