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Macroeconomics > Post midterm information > Flashcards

Post midterm information Flashcards

1
Q

how is money mart different from the real eoconomy

A

it serves as an accessory rather than the means to the end of having highest performing real economy that we can

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2
Q

three primary functions of banks

A

financial intermediation
provide liquidity
allow for diversification of risk

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3
Q

financial intermediation

A

any firm of person who comes between borrowers and savers

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4
Q

provide liquidity

A

banks provide a bunch of assets, most financial assets are only partially liquid

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5
Q

allow for diversification risk

A

don’t put all your eggs in one basket

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6
Q

structure of financial system

A
  • largest part of the money supply is credit
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7
Q

loanable funds

A
  • savers who supply
  • borrowers who demand
    loanable funds = interest rates
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8
Q

market for loanable funds

A
  • flow of funds from savers for the purpose of investment per time period
  • downwards sloping for loanable funds / investments
  • upwards sloping for savers / supply
  • surplus = downward pressure on price
  • shortage = upward pressure on price to bring it back to equilibrium
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9
Q

law of demand (in terms of loanable funds)

A
  • interest goes up, quantity of loanable funds borrowed goes down
  • interest rate goes down, quantity demanded of loanable funds goes up
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10
Q

law of supply

A
  • price goes up, quantity supplied goes up

- price goes down, quantity supplied goes down

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11
Q

determinants of saving

A
  • cultures
  • presence of a social safety net
  • wealth
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12
Q

policy to be implemented to encourage investment

A
  • investment tax credit

- right-wingers favour this

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13
Q

crowding out

A

happens because being credit hogs and helps get the good interest rate so they jack up so private investment spending gets crowded up

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14
Q

major players in the financial system

A
  • entrepreneurs
  • business entrepreneurs
  • businesses
  • speculators
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15
Q

punch line for aggregate economy

A
  • savings = investments

- equilibrium between aggregate savings and aggregate investment

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16
Q

3 functions of money

A
  • medium of exchange
  • unit of account
  • store of value
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17
Q

fiat money

A
  • declaration made by the government or bank of Canada
  • doesn’t give value to currency but people’s faith that they can exchange it for concrete goods and services

intrinsically worthless (meaning the only value it holds is the claim that it’s worth something, unlike when it was gold coins)

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18
Q

how money is created

A
  • money creation
    stamping out coins
  • credit
    leveraging deposits
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19
Q

what happens when reserves are insufficient

A

banks call back bank loans

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20
Q

the multiple creation of bank deposits

A

1/4 goes to reserve

3/4 goes to loan

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21
Q

multipler formula

A

change in cumulative deposits / change in original deposits

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22
Q

value of multipler formula

A

1 / desired ratio (MPS)

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23
Q

what is monetary aggregates

A

is a specific measure of money supply

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24
Q

M

A

money supply

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25
Q

M1

A

currency + demand deposits

more liquid

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26
Q

M2

A

M1 + notice deposits + savings deposits

broader magnitude

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27
Q

demand deposits

A

payable now

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28
Q

notice deposits

A

future payments

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29
Q

2 major types of actors in banking system structure

A
  • central bank of canada

- depository institution

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30
Q

what does the bank of canada do

A

issue money

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31
Q

purpose of monetary policy

A
  • designed to regulate the supply of money

- it influences short term interest rates

32
Q

objectives of monetary policy

A
  • to get low interest rates during recessions

- to get high interest rates durning booms

33
Q

primary instruments of monetary policy

A
  • open market operations

- changes in overnight rate

34
Q

open market operations

A
  • purchases
  • sales
  • to increase the money supply, the central bank has to inject new reserved into the financial system from outside of it
35
Q

quantitative easing

A

buying bonds big time in effort to inject liquidity into work financial markets

36
Q

how is equilibrium reached in the money market

A

move down and along the demand curve - don’t shift money supply curve until you’re given more information about monetary policy

37
Q

impact of monetary policy on the macroeconomy - if the goal is to stimulate the macroeconomy

A

buy bonds, expand quantity of money which circulates, MS shifts right, equilibrium rate of interest falls

38
Q

stimulative monetary policy

A

buying bonds in order to lower interest rates

39
Q

restrictive monetary policy

A

raise interest rates to make credit expensive

40
Q

tight money

A

high interest rates which reduces spending

41
Q

bank rate and over night rate

A

borrow from bank of canada - bank rate

borrow from competitors - pay overnight rate

42
Q

what happens when the bank of Canada and overnight rate goes up

A

it tightens the monetary screws so it discourages expansion of credit and send interest rates up across the board

43
Q

why do financial crises occur

A

from a combination of irrational expectations and leverage

44
Q

recency effect

A

basis human tendency to overvalue recent experience when trying to predict the future

45
Q

leverage

A

the practice of using borrowed money to pay for investments

46
Q

margin cell

A

ensures that people don’t lose money

47
Q

securitization

A

the practice of packaging individual debts into a single asset

48
Q

debt serive

A

the amount that consumers have to spend to pay their debts, often expresses as a percentage of disposal income

49
Q

basic tenet

A

international trade is economically beneficial for both participants

50
Q

autarky

A

closed economy

51
Q

three important points on basic tenet

A
  • economist view globalization as economically beneficial
  • Canada’s economy is relatively open in relation to others
  • thread has increased a lot
52
Q

international flows of gods and capital

A
  • changes in geoplitics
  • container shifts
  • financial globalization
53
Q

trade balance formula

A

net exports (exports - imports)

54
Q

net exports =

A

trade balance

55
Q

two international flows in financial capital

A

FDI - foreign direct investment

FPI - foreign portfolio investments

56
Q

FDI

A

Canadian companies have operations in foreign countries

- physical capital

57
Q

FPI

A

Canadians acquire financial instruments issued in foreign countries
- financial capital

58
Q

Net capital outflow (NCO)

A

purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreigners

59
Q

when net capital outflow is positive

A
  • financial capital is flowing out
  • we are buying up their securities more than they are buying ours
  • we get more securities, but make liquid payments flowing out for them
60
Q

when net capital outflow is negative

A
  • financial capital is flowing in
  • they are buying up our securities more than we are buying theirs
  • they get more securities, but we received liquid payments flowing in for them
61
Q

NCO - NX by necessity

A

net value of goods and services sold bu a country (NX) = net value of financial assets acquired

62
Q

NX > 0, NCO > 0

A

capital is flowing out

63
Q

NX < 0, NCO < 0

A

capital is flowing in

64
Q

how is the trade deficit financed

A

by negative net capital outflow or net capital inflow

65
Q

appreciaiton

A

more of the foreign currency per loonies or fewer loonies per unit of the foreign currency

  • makes our imports cheaper so imports increase
  • makes our exports more expensive for our trading partners to obtain so exports decreases
66
Q

depreciaition

A

less of the foreign currency per loonie, or more loonies per unit of the foreign currency

  • makes imports more expensive so imports decrease
  • makes our exports less expensive for our trading partners to obtain so exports increase
67
Q

foreign exchange market - weaker loonies

A

higher exports

68
Q

foreign exchange market - stronger loonie

A

lower exports

69
Q

monetary policy in the open economy

A
  • MS is low, interest rate is high
  • financial capital flows in
    demand or CAN$ by foreigners increases
  • Canadian dollar appreciates
  • X decreases and IM increases
  • NX decreases
  • AD shifts left
  • AD contracts
70
Q

balance of trade

A

exports - imports

71
Q

the balance-of-payments identity

A

shows the value of net exports equal to net capital outflow

72
Q

nominal exchange rate

A

actual transactions rate

1$ cn = $0.75 us

73
Q

real exchange rate (XR)

A

nominal XR

overall foreign P

74
Q

formula for national savings

A

= investment + net exports

= I + NX

75
Q

Exam QUESTION how is the trade deficit financed?

A

financed by negative net capital outflow or net capital inflow

76
Q

total savings equals

A

domestic investment spending

77
Q

what do central banks do? exam question

A

they issue currency (created at the mint), act as the bankers’ bank (for the big 5 banks),act as a banker for the federal government, executes monetary fiscal policy

Macroeconomics (4 decks)

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