ECON Final

ECON Final - HIGH INTEREST RATE INCREASES SAVINGS Money...

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HIGH INTEREST RATE INCREASES SAVINGS Money flow and NCO Quantity of money: MV = PY Money Supply = {Cr + 1 / Cr + Rr} x B Money Multiplier (M/B) = (Cr + 1) / (Cr + rr) M = money supply = C + D) Monetary base = C + R V = velocity P = price (think of this as inflation Y = Real GDP (whenever you see real GDP, use this) (P x Y ) = nominal GDP C = Currency Rr = Reserves = rr x D Currency-to-deposit ratio (Cr) = C/D Reserve Requirement (Rr) = R/D Deposits = M – C Currency = M – D (Increase Monetary Base) x (Multiplier) = Increase in Money Supply Between two countries, different money supply corresponds to different prices (not real GDP) NCO = CO – CI S = I + NX - I = domestic investment Trade deficit NX < 0 Buying more goods and services from foreigners than selling to them – selling assets abroad Y < C + I + G Appreciation Trade surplus NX > 0 Selling more goods and services to foreigners than buying from them – buying foreign assets Y > C + I + G Raise in interest rate National Savings = Y – C – G Private Savings = Y – C + Tr – T Public Savings = T – G - Tr Nominal Exchange Rate – trade one country’s currency for that of another Real Exchange Rate = (Nominal Exchange rate x Domestic Price) / Foreign Price = (e x P) / P* Purchasing Power Parity 1/P = e/P*
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This note was uploaded on 01/14/2012 for the course ECON 002 taught by Professor Eudey during the Fall '08 term at UPenn.

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ECON Final - HIGH INTEREST RATE INCREASES SAVINGS Money...

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