Fin 4319-Record A3

Question 1

What does rising inflation cause?

Answer 1

High employment

Question 2

What does low inflation cause?

Answer 2

Low employment

Question 3

What is stagflation?

Answer 3

In 1970’s rising unemployment, rising rate of inflation

Question 4

What are the goals of the Federal Reserve bank?

Answer 4

1. Full employment

2. Low inflation

Question 5

What happened in the late 1990’s?

Answer 5

high full employment, and low rate of inflation.

Question 6

What is keynesian economics?

Answer 6

Subsequently, the term “Keynesian economics” was used to refer to the concept that optimal economic performance could be achieved – and economic slumps prevented – by influencing aggregate demand through activist stabilization and economic intervention policies by the government.

Question 7

Who are they talking about when they ‘the fed’

Answer 7

Federal Reserver also known as Central Bank

Question 8

What is the velocity of money?

Answer 8

How many times money is exchanged during the year

Question 9

what are the tools of fed?

Answer 9

1. change the discount rate
2. reserve requirement
3. open market operations

Question 10

according to monetarist how is inflation created?

Answer 10

the growth of money supply

Question 11

what is milton friedman view?

Answer 11

he’s a monetarist

Question 12

what is the long run neutrality of money

Answer 12

in the long run can not influence economic activity

Question 13

how does short run “illusion of money”

Answer 13

friedman effect, it seems like you have a lot more money in short run, but long run we just have inflation

Question 14

how long does the illusion of money last?

Answer 14

2-3 years

Question 15

what are monetary dove?

Answer 15

easy money, want everyone working and don’t care about inflation

Question 16

what is a monetary hawk?

Answer 16

low inflation, price stability, don’t care if people are out of work

Question 17

what are rational expectations?

Answer 17

they see what fed is doing in short and long run, nominal interest rates would jump, inflation would increase -> superneutrality of money.. Fed would have no power

Question 18

who is the paul volcker

Answer 18

federal reserve chairman in 80’s who lowered inflation but stopping the money supply

Question 19

what is spot rate of interest?

Answer 19

it’s the current rate of interest (right now.. this minute)

Question 20

what is supraneutrality

Answer 20

if fed increase money supply, the

Question 21

how do you find inflation expectations?

Answer 21

look spread between treasuries and tips (treasury inflation protected security)

Question 22

what is the fisher model?

Answer 22

market’s expectation is based on past inflation rates

forecast inflation on a model on past and put more weight on recent quarters, so if inflation has been low and people expect it to continue to be low

if inflation is low and is picking up, it

naive approach, in real world bring in other considerations.

Question 23

what does economic theory say about inflation

Answer 23

inflation is when economy is growing too fast, (overheated), growing to slow is deflation. Look at past utilization and

Question 24

what is capacity utilization

Answer 24

to what extent the factories operating at full out put.

Question 25

what determines inflation expectations?

Answer 25

fisher model