Final Exam Review - Short Answer Flashcards
Wealth and Fisher effect graphs!
NOW!
What is the Federal Government’s Budget constraint?
Government spending - tax revenues = change in bonds + change in money supply (printing money)
Define federal funds.
overnight bank-to-bank borrowing of reserves.
If the “shelter” component of the CPI in August 2024 was 401.545 and in July 2024 it was 400.234, what is the inflation rate for the month (annualized)?
3.93%
Calculate the present value of an investment that pays $4,500 received at the end of next year and $5,500 the end of the second year at an 8% discount (interest) rate.
$8,882.03
PV = FV/((1+r)^n)
2020 is the base year.
In 2020, you spent $37 on each pair of jeans a buying 3 pairs and bought T-shirts that cost $26 at each of the 4 concerts/activities that you “attended”. Food cost you $80 per week and because you only lived at home for six weeks during the year you had to buy food for 46 weeks. Finally, each of the 13 pizza “dinners” you were part of cost $12.
In 2021, you spent $39 on each pair of jeans and bought 4 pairs, you bought 5 concert/activity T-shirts at $25 each. Food cost you $85 per week but you lived at home for seventeen weeks during the year (so “had” to buy for 35 weeks). Finally, each of the 13 pizza “dinners” you were part of this year cost $13.
a.) calculate the CPI for 2021 with 2020 as the base year.
b.) calculate the rate of inflation.
c.) calculate nominal GDP
d.) calculate real GDP
e.) calculate the GDP deflator
a.) 106.05 ((sumof P(new) Q(old))/(sumof P(old) Q(old))x 100
b.) 6.05 (CPInew-CPIold/CPIold)
c.) 3425 (sumof P(new)Q(old))
d.) 3234 (sumof(P(old)Q(new))
e.) 1.059% (nominal/real)
Number 8 on test 1
Go do it :)
What is commercial paper?
270 days or less to maturity, issued by large corporations and banks, and is unsecured.
What are the three functions of money?
Medium of exchange, unit of account, store of value
Explain the government safety net including the ideas of moral hazard and adverse selection. Remember to include issues prior to 1934 when there was no government safety net.
Created by FDIC, FED, OCC.
Prior to 1934, depositors waited for bank liquidation for funds and did not know the quality of bank assets.
After 1934, the FDIC used two approaches: the “payoff” method and :purchase and assumption” method when banks were failing.
There were 3 drawbacks to the safety net - adverse selection (discriminating because of apparent need for help), moral hazard (taking more risk on the depositor side which was not agreed (a loophole)), and the “too big to fail” policy.
Which Act raised the amount of the safety deposit net?
The Dodd-Frank reform act of 2010
What is the FDIC and how much deposits do they cover?
Federal Deposit Insurance Corporation, $250,000 (1/4 mil)
What are the three major rating agencies of corporations’ debt?
Standard and Poor’s, Moody’s, Fitch
Define and explain the meaning of the slope of today’s yield curve (inverted)
The interest rates on short-term bonds are higher than those on long-term bonds
A bank has rate-sensitive assets of $60 million and rate-sensitive liabilities of $30 million. If interest rates rise by 5 percentage points, say from 10 to 15 percent, bank profits (measured using gap analysis) will change by how much?
$1.5 million
