exam 2 study guide

exam 2 study guide - of money Be able to connect the...

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Review Sheet for the Second Exam Chapter 11 Know how a fractional reserve banking system works: how do banks create money? Be able to represent it using the T-account. Know that banks decide to put deposits in reserve accounts, both required reserves and excess reserves. Understand how banks convert excess reserves to interest earning assets, either loans or securities. Identify the instruments the FED can use to influence money supply, i.e. setting the reserve requirement, setting the discount rate, and conducting open market operations. Be able to derive the money multiplier and show how it affects the amount of money that can be supported by deposits. That is, , where equals the money supply, rr is the reserve requirement, and DD is demand deposits. Chapter 12 Put the money supply with money demand to set the price level and the value of money. Show how shifts in money demand or money supply affect the price level and the value
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Unformatted text preview: of money. Be able to connect the FED’s operations to this framework. Understand the quantity theory of money and the quantity equation, along with the discussion of velocity and growth in real GDP (Mankiw’s principle #9). Chapter 13 Know what exports, imports and net exports are. Be clear about why net exports must equal net capital flows. Discern the difference between foreign direct investment and foreign portfolio investment, with their tie to net capital outflows. Know how to calculate real exchange rates and nominal exchange rates, and understand the relationship between them. Be clear about purchasing power parity, the law of one price, and currency appreciation and depreciation. Chapter 14 Understand the three panel diagram to determine the real interest rate and the real exchange rate simultaneously. Study and review the three problems in the chapter: budget deficits, trade policies and capital flight....
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This note was uploaded on 01/18/2012 for the course ECO 202 taught by Professor Normmiller during the Spring '08 term at Miami University.

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