Monetary police

Question 1

Quantity theory of money (Inflation)

Answer 1

Formula:

Money supply x Velocity = Nominal GDP = Price x Output

MV = PY

M= Money Supply
V = Velocity
P = Prices (Inflation)
Y= Real output

Reduce the money supply

Velocity of money does not combat inflation

Increase in excess reveserve of banks will increase inflation

Question 2

1.Central Bank:
functions (3)
objetictives (3)
3 essential qualities

2. What are the Prime rate, Fed Fund rate and discount rate?

Answer 2

FUNCTIONS
1. Manage money supply
2. Regulate the Banking system
3. Issue currency

OBJECTIVES
1. Pursue 2 or 3 % inflation (Mainly)
2. Look for price stability
3. Control monetary policies

3 QUALITIES
1. Credibility
2. Transparency
3. Independence

2.
Prime rate - Melhor rate pros clientes melhores

Fed Fund Rate - CDI

Discount rate - Taxa dos bancos com o Fed

Question 3

Relation about selling and buying bonds and interest rates

What is the demand for money curve?

And what type of line is money supply?

What is determined by the equilibrium between money supply and demand of money?

Answer 3

Sell bonds -> Pensa na açao, vender cai o PREÇO, aumenta a TAXA

Buy bonds -> Aumenta o preço, cai a taxa

2. Relation between Money demand and Short-term interest rates

Vertical one ( Monetary Institutions)
Draw the graph with a downward line to the right (demand) and vertical for supply (Y-rate;X - QMoney)

3. Interest rates

Question 4

Three reasons to hold your money

Answer 4

Precautionary
Speculative (Investment)
Transaction

Question 5

Fisher Effect

What happens to target of a monetary policy when it is successful?

Why stagflation is a difficult theme?

Answer 5

All interest rates contain a premium for expected inflation

Equals to inflation rate

Because Monetary polices can’t reach for growth and lower inflation at the same time

Question 6

3 money functions:

Money balance
Two scenarios: Holding money and holding securities

Answer 6

1. .Serves as a unit account (Prices and goods are units of money)

. Store of value (Money received from services and goods and purchase future G&S in the future)

.Exchange (Accepted for payment)

2. Holding money:
   Interest rates are higher than equilibrium. ( High opp cost)
   People will buy securities
   price updates down

holding securities
rates below equilibrium
sell securities
price down
rates up

Question 7

Potencial deposit expansion Mult.

Potencial money supply

Answer 7

1. 1
   ⎯⎯⎯⎯⎯
   Required rate
2. Deposit expansion x Increase Excess in reserves

Question 8

Fiscal policy

Monetary policy

Answer 8

Fiscal
Price stability
Econ Growth
Wealth redistribution
Government spending

Monetary
Price estability
Econ Growth
Inflation
Money supply

Question 9

Neutral rate formula

Considerations of contractionist or Expansionist policy and neutral rate

Answer 9

N rate =
Trend rate of real growth x Inflation (target)

Dá para fazer + como aproximação tbm

Neutral > Policy = Expansion

Policy > Neutral = Contraction

Policy = Neutral = neutral