Economics

Question 1

Covered Interest Rate Parity

Answer 1

Enforced by arbitrage

Question 2

Uncovered Interest Rate Parity

Answer 2

Expected change in spot rate over time horizon is reflected in the interest rate differential

Question 3

Forward Rate Parity

Answer 3

Forward exchange rates are an unbiased predictor of future spot exchange rates

Assumes Covered and Uncovered interest rate parity holds

Question 4

Law of One Price

Answer 4

Identical Goods should trade for the same price across countries when valued with a common currency

Question 5

Absolute Version of Purchasing Power Parity

Answer 5

Equilibrium exchange rates are entirely determined by the ratio of the national price levels

Question 6

Relative Version of Purchasing Power Parity

Answer 6

Percentage change in spot rate is determined entirely by the inflation differential of the domestic and foreign countries

Question 7

ex ante version of Purchasing Power Parity

Answer 7

Inflation expectations are responsible entirely for the change in future spot rates

Question 8

Real Interest Rate Parity

Answer 8

The proposition that real interest rates will converge to the same level across different markets

Question 9

International Fisher Effect

Answer 9

The foreign-domestic nominal yield spread is determined entirely by the expected inflation differential between the two countries

Question 10

The Flow Supply/Demand Channel

Answer 10

The theory that purchases and sales in international goods & services require exchange of domestic and forein currencies to settle transactions ie. Country that sells more than buys has more demand for their currency and their currency appreciates

Long Lag for goods to reprice to different exchange rates

Question 11

Portfolio Balance Channel

Answer 11

Country that sells more goods than it buys will own too much of the other countrie’s currency; they might want to sell to balance their portolfio, pushing down exchange rates for the foreign currency

Question 12

Mundell Fleming Model w/ High Capital Mobility

Answer 12

Question 13

Mundell Fleming Model w/ Low Capital Mobility

Answer 13

Question 14

Portfolio Balance Approach

Answer 14

Countries that run large budget deficits for an extended period of time could see their currency depreciate in the long run

Question 15

Production Function

Answer 15

Question 16

Total Factor Productivity (TFP)

Answer 16

General level of productivity or technology in an economy

Denoted by A in production function; multiplicative to growth

Question 17

Cobb-Douglas Production Function

Answer 17

Question 18

Cobb Douglas Production Function in Output per Laborer Terms

Answer 18

Question 19

Growth Accounting Equation

(Solow)

Answer 19

Question 20

Labor Productivity Growth Accounting Equation

Answer 20

Question 21

Captial Deepening

Answer 21

An increase in the Captial to Labor ratio

Question 22

Dutch Disease

Answer 22

Currency Appreciation driven by strong export demand make other sectors of the economy, particularly manaufacturing, less competetive globally

Question 23

Labor Force Participation Rate

Answer 23

Percentage of the working age population in the labor force

Question 24

Classical Model

Answer 24

Increase in productivity increases population growth, because of marginal returns to labor, population growth outpaces per capta income.

The relationship between productivity and population growth broke down.

Question 25

Growth Rate of Output per Worker

Answer 25

Question 26

Sustainable Growth Rate of Output

Answer 26

Question 27

Equillibrium Output to Capital Ratio

Answer 27

Question 28

Production Function in Endogenous Growth Theory

Answer 28

Question 29

Absolute Convergence

Answer 29

Developing Countries, regardless of their starting point, will eventually catch up to developed countries and match them in per capita output.

Convergence of growth rate, not total level

Neoclassical Growth Implication

Question 30

Conditional Convergence

Answer 30

If countries have same savings rate, population growth & production function, countries will converge to both the same growth rate and level of growth over time

Neoclassical Growth Implication

Question 31

Club Convergence

Answer 31

Only Rich and Middle income countries will converge, poor countries will not unless they make institutional changes

Question 32

Informational Frictions

Answer 32

Market inefficienies that lead to sub optimal market outcomes

Question 33

Statutes

Answer 33

Laws enacted by legislative bodies

Question 34

Administrative Regulations or Administrative Law

Answer 34

Rules issued by government agencies or other regulators

Question 35

Judicial Law

Answer 35

Interpretations of the Courts

Question 36

Independent Regulators

Answer 36

Non government agencies but are given their authorities by governments

More immune from political pressure

Question 37

Self Regulatory Bodies

Answer 37

Private organizations that are given their power by their members

Question 38

Self Regulating Organizations (SRO’s)

Answer 38

Are given their recognition & authority, including enforcement power, by government agencies

Question 39

Substantive Law

Answer 39

Focuses on the rights and responsibilities of entities

Question 40

Procedural Law

Answer 40

Focuses on the protection and enforcement of substantive laws

Question 41

Regulatory Capture

Answer 41

Regulation that works for the enhancement and benefit of the regulated

Question 42

Regulatory Competition

Answer 42

Regulators compete to provide a regulatory lanscape to attract certain entities

Question 43

Regulatory Arbitrage

Answer 43

Identification and exploitation of certain regulations in their interpretation or economic substance for the benefit of a company

Question 44

Regulatory Burden

Answer 44

Cost of regulation for the regulated

Question 45

Net Regulatory Burden

Answer 45

Private costs of regulation minus the private benefit of regulation