The Monetary Sector

Question 1

The Central bank is the Lender..

Answer 1

.. of Last Resort

Question 2

Liabilities =

Answer 2

Monetary Base + Other liabilities to ODCs + Liabilities to rest of the economy

Question 3

Monetary Base = f(Currency Issued, Liabilities)

Answer 3

Currency Issued + Liabilities to all excl. Govnt.

Question 4

Monetary Base = f(Assets)

Answer 4

NFA + NDA

Question 5

M1

Answer 5

Currency in Circulation + Demand Deposits

Question 6

M2

Answer 6

M1 + Time and Saving Deposits + MM Funds + FX Deposits

Question 7

M2 = f(Quasi Money)

Answer 7

M1 + Q = NFA + NCG + CPS

Question 8

Monetary Base = f(M?)

Answer 8

M0

Question 9

Money Creation/Created, M =

Answer 9

Deposits (aka MB) / Reserve Ratio

Question 10

Money Multiplier, MM

Answer 10

M / MB = 1 / RR

Question 11

Aggregate Money Demand is predicted by the .. rule

Answer 11

Taylor Rule

Question 12

Taylor Rule says that

Answer 12

the policy rate is a function of 1) the expected inflation rate 2) the expected inflation rate vs target 3) the output gap

Question 13

The Taylor Rule means that there is a practical policy tradeoff between

Answer 13

growth and inflation

Question 14

Demand Pull Inflation happens when growth is ..

Answer 14

too fast

Question 15

Cost Push Inflation happens when growth is ..

Answer 15

sluggish

Question 16

In MV = PY, think about the interest rate as the opportunity cost of ..

Answer 16

holding/saving money OR price of new money

Question 17

NFA = f(NFA,0)

Answer 17

NFA,0 + Change in(Reserves, BOP)

Question 18

We approximate CPS growth with

Answer 18

real domestic growth (but where large retained earnings and access to credit is limit this is unlikely to hold)