macro

Question 1

the goods market

Answer 1

Y=C+I+G+X-IM

multiplier
-increase in demand triggers increase in production which increases income etc

Question 2

financial market

Answer 2

Md= PY L(i)

• increase in nominal income increases money demand (because lvl of transactions increase)
• increase in interest rate decreases money demand because more willing to hold bonds
• if money supply higher than money demand decrease interest rate

Question 3

monetary policy of ECB

Answer 3

• need to keep a fraction of money as reserve (for atm)
• the higher the reserve the lower the money supply and thus the higher interest rate
• buy and sell bonds to influence Ms
  
  • sell bonds get money Ms decreases
  • buy bonds pay money Ms increases

Question 4

the money multiplier

Answer 4

if you deposit 1000€ the bank keeps 100€ as fraction then they lend the other 900€ to max who deposits 900€ where they keep 90€

as deposit = money suppy the money supply is noe 1900

Question 5

liquidity trap

Answer 5

interest down to zero and monetary policies can not decrease it further

Question 6

goods market an IS relation

Answer 6

Investment I depend on outout Y and interest i

• negativ relationship —> high i decreases I as more costly to borrow money to invest
• decrease in I leads to decrease in Y

Question 7

IS and fiscal policy

Answer 7

contraction: increase in T decreases demand and shifts curve to the left
expansion: decrease in T increases demand

Question 8

financial market and LM curve

Answer 8

horizontal line at value of interest rate independant from output level

Question 9

IS-LM

Answer 9

as IS downward sloping decrease in i leads to increase in Y

Question 10

monetary policy

Answer 10

government decreases i bei increasing money supply

Question 11

price wage spiral

Answer 11

increase in production means decrease in unemployment means increase in wages means increase in prices which again lead to increase in wages and so on

Question 12

wage setting and price setting

Answer 12

wage setting: positively influenced by unemployment and unemployment benefits

price setting: influenced by mark up

intersection between price setting and wage setting is natural rate of unemployement

Question 13

philips curve

Answer 13

high unemployment associated with low inflation

expectations-augmented philips curve:
high unemployement associated wurh decreasing inflation rate

for the natural rate of unemployement the inflation is stable

change in inflation depends on difference between actual and natural rate of unemployement

actual below natural ->increasing inflation rate

Question 14

potential output-PC

Answer 14

relationship between inflation and output

• output above potential inflation increases
• if output increases inflation increases

Question 15

IS-LM-PC

Answer 15

IS-LM model determines output level which is transfered to the PC curve where you them can see the inflation for this new output

Question 16

zero lower boind and debt spiral

Answer 16

if interest rate ar zero (zero lower bound) CB van not adjust interest rate downwards to increase potential output

zero interest rate associated with deflation

deflation increases real interest ratr which decreases demand even more which leads to even lower output

Question 17

real exchange rate

Answer 17

decision to save or buy and buy domestic or foreign goods

relative price: relation between price of domestic good and price of foreign good

Question 18

nominal exchange rate

Answer 18

price of domestic currency in terms of foreign 1€= x$

price if foreign in terms of domestic
x€=1$

Question 19

appreciation and depreciation

Answer 19

nominal:
appreciation in domestic: increase of price of domestic currency in term of foreign

real: increase in real exchange rate is apprciation -> can buy more foreign goods with same amount of domestic
- imports increase

Question 20

interest parity condition

Answer 20

both bonds lead to the same expected return on investment

if european bonds have a higher return the uk people will sell their british bonds and exchange pound to wuro to buy european ones
this increases the demand in euros, euro appreciates and we move back to the interest parity condition