Review 3 Econ 161

Review 3 Econ 161 - Economics 161 Spring 2011 Global...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Economics 161 Spring 2011 Global Integration of Latin America Review Sheet 3: Financial Crises May 24, 2011 Instructor: Marc-Andreas Muendler E-mail: muendler@ucsd.edu 1 Sovereign Risk Explain why higher default risk increases the interest are. Provide a numerical example to illustrate your verbal explanation. Explain in words the moral hazard problem associated with international debt service and default. Distinguish between ability and willingness to re- pay and explain two scenarios under which lacking willingness to repay can be concealed as lacking ability. 2 Quantity Theory of Money Explain why the Quantity Theory of Money implies that the annual rate of ination equals the annual rate of money growth. Suppose the foreign country does not change its money supply so that it has zero ination. Explain why, under this scenario, the annual rate of deprecation of the home currency also equals the annual rate of money growth. Finally, suppose the foreign country changes its money supply with a constant growth...
View Full Document

Page1 / 2

Review 3 Econ 161 - Economics 161 Spring 2011 Global...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online