Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

International monetary trade ecn 606 > chap 7 > Flashcards

chap 7 Flashcards

1
Q

what happens when trade balance increase ? (in TB - real exchange rate graph )

A
  • trade balance shift up , in relation to ER
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Factors that shift LM curve (graph)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is the shape of the IS curve ? ( line )

A
  • It is curve is downward
  • it illustrate the negative relationship between the interest rate I and output Y
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Deriving LM curve

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Shock to investment (investment graph)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Monetary policy under fixed exchange rate

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Consumption Funtion Graph:

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Two important observation about deriving the IS curve :

A
  • In an open economy , the lower interest rates stimulates demand through the traditional closed- economy investment channel and through trade balance.
  • The trade balance effect occurs because lower interest rates cause a nominal depreciation ( a real depreciation in the short run), which stimulates external demand.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Formula for goods market equilibrium :

A

Y = C (Y-T~) + I(i) + G~ + TB ( EP~ / P~* , Y - T~ , Y* - T~*)

C (Y-T~) : consumption function ( Keynesian)

I(i) : investment function (relate to interest rate)

G~: government consumption ( g = taxes , no social program)

TB ( EP~ / P~* , Y - T~ , Y* - T~*) : trade balance function ( increasing function , decreasing function , increasing function )

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Formula for Expected real interest rate “re” :

A

re = i - Pie

I : interest rate

Pie : inflation rate

“re”: Expected real interest rate re is the cost of investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Liquidity Trap

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Formula for aggregate demand :

A

D = C + I + G +TB

C: consumption,

I : investment

g : government

tb: trade balances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What a general equilibrium market needs?

A

It require equilibrium in all markets :

  • Goods markets
  • Money Market
  • Forex market
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Who and How stabilization policies can be used ?

A
  • By authorities, they will try to keep the economy at full employment level output
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What policymakers should do if the economy is hit by a temporary adverse shock ?

A
  • They should use expansionary monetary policies to prevent deep recession
  • Conversely, of the economy is push by a shock above its full employment level , contractionary policies could tame the boom
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Poland and Lavia (policies differences)

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

formula of supply : (fallowing previous assumptions of tb and GNI = GDP )

A

Supply = GDP = Y

Y : gross national income (GNI)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is the meaning of “ crowding out” ?

A
  • It is the fiscal expansion impact where the increase in government spending is offset by decline in private spending
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Responses to Policies Shock in the IS-LM-FX

A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what happens when household decide to consume more ? (in consumption - disposable income graph )

A
  • the consumption function shift up
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Factors that shift the IS curve : Demand curve D (shift up) IS curve shift right

A
  • Rise in government spending “G”
  • Fall in taxes “T”
  • Fall in the FOREIGN interest rate “I*”
  • Rise in the FUTURE nominal exchange rate “ER”
  • Rise in foreign prices “P*”
  • Fall in home prices “P”
  • Any shift up in the consumption function “C”
  • Any shift up in the investment function “I”
  • Any shift up in the trade balance function “TB”
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Deriving IS curve (graph)

A
23
Q

what is a mayor assumption about the government ? (in this model and specific class )

A
  • that the G = T , government is equal to taxes - ignoring all transfer programs (for simplicity)
24
Q

Summary of reasons for demand curve D shifts up : (increasing demand at any given level of output ) (and the opposite)

A
  • Rise in government spending “G”
  • Fall in taxes “T”
  • Fall in the home interest rate “i”
  • Rise in the nominal exchange rate “ER”
  • Rise in foreign prices “P*”
  • Fall in home prices “P”
  • Any shift up in the consumption function “C”
  • Any shift up in the investment function “I”
  • Any shift up in the trade balance function “TB”
25
Q

What contain the LM curve ?

A
  • The set of combinations of Y and I that ensure equilibrium
26
Q

what events fallow after a TEMPORARY MONETARY EXPANSION (under fixed ER) ?

A
  • It is impossible to undertake because fixing the ER means giving up monetary policy autonomy
  • Trilemma problem
27
Q

what happens when firms decide to invest more ? (in the interest rate - investment graph)

A
  • the investment function shift right
28
Q

Money market formula :

A

M/P~ = Y x L(i)

M/P~ : Real money supply

Y x L(i) : real money demand

P~: price level assuming sticky currency

29
Q

What investment function do ?

A

It relate the quantity of investment to the level of expected real interest rate, which equal the nominal interest rate “I”

  • When we assume that inflation is zero , the investment slope is downward
30
Q

Key assumptions for IS-LM-FX model :

A
  • The economy start in long run equilibrium , considering policies changes in home economy (assuming no change in foreign economic conditions )
  • The home economy is subject to sticky prices
  • also , forex market operates freely and unrestricted by capital controls - exchange rates only determined by market forces
31
Q

Factors that shift the LM curve

A
  • Rise in nominal money supply M
  • Any shift left in the money demand function
32
Q

Uncovered interest parity (UIP) equation :

A

i=I* + ( (Ee/E) - 1 )

I: domestic interest rate (domestic return)

I*: foreign interest rate

( (Ee/E) - 1 ): Expected rate of depreciation of domestic currency

I* + ( (Ee/E) - 1 ) : Expected foreign return

33
Q

What via use fiscal policies ? What via use monetary policies ?

A
  • Changes in spending or taxes = Changes in money supply
34
Q

what events fallow “directly” after a TEMPORAL FISCAL EXPANSION (under fix ER) ?

A

It raise output by a considerable amount

35
Q

Fiscal policy under fixed exchange rate

(TEMPORARY FISCAL EXPANSION)

A
36
Q

what are the consequences of a “ fiscal expansion crowding out “?

A
  • It raise interest rate (push investment)
  • decrease net export ( by causing ER to appreciate )
37
Q

IS-LM-FX model

A
38
Q

Shock to trade balances Graph

A
39
Q

what events fallow “directly” after a FISCAL EXPANSION (under floating ER) ?

A
  • Raise output HOME
  • Raise interest rate
  • Appreciation of ER
  • Decrease trade balances
40
Q

Fiscal Policy under Fix Exchange Rate

A
41
Q

The rigth time for austerity

A
42
Q

Investment funtion graph

A
43
Q

Shock to consumption (graph)

A
44
Q

what the IS equilibrium shows ?

A
  • It shows the combinations of output “Y” and the interests rate “i” for which the goods and forex ,market are in equilibrium
45
Q

what events fallow “indirectly” after a FISCAL EXPANSION (under floating ER) ?

A
  • Crowding out investment and export
  • Limits the rise of output
46
Q

Fiscal Policy under floting Exchange rate

A
47
Q

Monetary Policy under floting exchange rate

A
48
Q

Fiscal Polcies under fixed (EFFECTS)

A
49
Q

Trade balance graph

A
50
Q

Trade Balances Graph

A
51
Q

What is the Keynesian consumption function ?

A
  • A model of aggregate private consumption in relation to household consumption “C” to disposable income “Yd” C = C ( Y - T~) C: consumption Y : disposable income T ~ : taxes
52
Q

what events fallow after a TEMPORARY MONETARY EXPANSION (under flowing ER) ?

A
  • Raises output HOME
  • Lowers interest rate
  • Depreciation of ER
53
Q

The goods market Equilibirum and the keynesian cross: (graph)

A

International monetary trade ecn 606 (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions