HONov15 - Economics 201, Witte, Tuesday, November 15, 2005...

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Economics 201, Witte, Tuesday, November 15, 2005 Final Quiz! Aplia “Exchange Rates and the Macroeconomy II”, Krugman & Wells Chapter 19 vocabulary: appreciate, depreciate, and Figure 19-6 (p.472) I have more copies of Volume VI of Krugman and Wells. Chapter 19 is found at www.*** CUMULATIVE Final Exam: Thursday, December 8 th , 3:00-5:00. Bring Wildcard, calculator, and an 8.5 by 11 inch note-sheet on which you can put whatever notes you think will be helpful. The final will resemble the recent old midterms more than it will the old final exams I’ve posted. It’s worth 45% of your grade, but big improvements will be noted in this calculation. Dangers to Monetary Policy I. Unexpected changes in inflation redistribute wealth, and bankruptcy! a. Role of inflationary expectations b. Fisher Equation: i = r + Expected inflation II. Debt deflation: AD reduced by falling prices increasing the burden of outstanding debt III. Liquidity traps: If interest rates get close to zero, there is little opportunity cost to hording money so monetary policy has little effect IV. Hyperinflation Seigniorage and Inflation 1. Government Budget Constraint: G = T + d(Debt) + d(Monetary Base) 2. Fed increased the monetary base by $44 billion last year, essentially seigniorage profits for the government. That’s 6.9% growth, versus 4.2% growth of nominal GDP. (For comparison sake: this was an amount of revenue equal to about a third of the tax collection on corporate profits.) 3. Real world example of Ghana in 2001 http://www.faculty.econ.nwu.edu/faculty/witte/B01/handouts/ghana.html
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HONov15 - Economics 201, Witte, Tuesday, November 15, 2005...

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