Monetary Economics (ECS3701) Selected Examination Questions and suggested solutions 2023

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What determines aggregate prices and output? - -Aggregate demand and supply -What determines interest rates in the short-run? - -The Fed controls interest rate -How does fiscal policy affect the... economy (Arrow) - -G up -> D up -> p,y up T up -> Y-T down -> C down -> D down -> p,y down -How does the stock market affect the economy? (Arrow) - -S up -> W up -> C up -> D up -> y,p up -How does money "matter" (impact the economy) in the short-run? ) (Arrow) - -Md&Ms -> r -> I -> D -> y,P -What are some additional channels by which money impacts the economy? (Arrow) - -Paradox of thrift: S up -> C down -> D down -> y down Crowding out: G up -> I down (partial if at all in SR) Multiplier: G up -> D up -> Y up by multiple (possibly by C which makes D go up by more) Wealth effect: W up -> C up -> D up -> y,p up International: Exchange rates down -> X up -> D up (X increase s D / M decreases D) -What is Keynesian liquidity preference? The speculative demand for money? - -An investor demands a higher interest rate, or premium, on securities with long-term maturities, which carry greater risk, because all other factors being equal, investors prefer cash or other highly liquid holdings. Interest rates on short-term securities are lower because investors are sacrificing less liquidity than they do by investing in medium-term or long-term securities. Demand for financial assets, such as securities, money, or foreign currency, that is not dictated by real transactions such as trade of financing. Arrises from the need for cash to take advantage of investment opportunities that may arrise [Show More]

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