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Ch. 8: Money and inflation. Money Definition Types Functions Gresham’s law & bimetallic standard History of banking Fractional reserve banking and the creation of money. History and structure of the Fed Fed tools for controlling the money supply Discount rate Reserve ratio

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ch 8 money and inflation
Ch. 8: Money and inflation
  • Money
    • Definition
    • Types
    • Functions
  • Gresham’s law & bimetallic standard
  • History of banking
  • Fractional reserve banking and the creation of money
  • History and structure of the Fed
  • Fed tools for controlling the money supply
    • Discount rate
    • Reserve ratio
    • Open market operations
  • Components of the money supply
    • Monetary base, reserves, M1, M2
ch 8 money and inflation1
Ch. 8: Money and inflation
  • Balance sheet entries for
    • Open market operation
    • Change in reserve ratio
    • Change in public cash holdings
  • Equation of exchange
    • Quantity theory of money
  • Link between inflation and money supply growth
  • Money market and determination of interest rates
    • Factors affecting money supply /demand
    • Bond market when interest rates are above or below equililbrium.
financial markets
Financial markets
  • Present and future value
  • Bond prices and interest rates
    • One year bond
    • Zero coupon bond
  • Determinants of bond yields
    • Risk
    • Term
    • Liquidity
  • Stock market
    • Fundamental value of stock
    • Stock metrics
      • PE ratio
      • Beta
    • Factors influencing stock prices
    • Efficient markets hypothesis
  • Futures markets and price expectations.
ch 9 exchange rates and the balance of payments
Ch. 9: Exchange rates and the balance of payments
  • Supply/demand model and determinants of exchange rates
    • Interest rates, imports/exports, expected asset returns, inflation, expected future exchange rates, etc.
  • Interest rate parity
    • Conditions required for parity
    • Arbitrage opportunities when parity doesn’t hold
    • Implications for exchange rate movements when interest rates aren’t equal
  • Purchasing power parity
    • Conditions required for parity
    • Arbitrage opportunities when parity doesn’t hold
    • Implications for movements in exchange rates based on inflation differentials
ch 9 exchange rates and the balance of payments1
Ch. 9: Exchange rates and the balance of payments
  • (X-M=(S-I) + (Tn-G)
  • X-M as indicator of a country’s status as internat’l borrower or lender.
  • Factors affecting a country’s status as borrower or lender
  • Debtor/creditor versus borrower/lender
  • Balance of payments accounts
    • Capital, current, official settlements
    • Debits vs credits in accounts
    • Implications of surplus or deficit in each account
  • Exchange rate regimes
    • Flexible
    • Fixed
    • Crawling peg
    • How central banks can manipulate exchange rates and implications for official settlements account and trade flows
ch 10 ad and as
Ch. 10: AD and AS
  • Determinants of long run AS
    • Labor market
    • Production function
  • Determinants of short run AS
    • Nominal wages sticky in short run
    • Effect of a movement along SRAS on prices, real wages and employment
    • LRAS
  • Determinants of AD
    • C+I+G+(X-M)
    • Why AD is downward sloping.
    • Fiscal policy (taxes or spending)
    • Expectations about inflation, future income
    • Exchange rates
ch 10 ad and as1
Ch10 AD and AS
  • Implications of inflation/recessionary gap for
    • Real wages relative to equilibrium
    • Employment relative to equlibrium
    • Unemployment relative to natural rate
    • Real GDP relative to potential
  • Short run and long run effects of a change in AD.
  • Keynesians versus others on merits of policy interventions to stabilize economy.