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Foreign Exchange Market: Its the buying and selling of currency. Appreciation: The value of currency is strong, the dollar buys more of another country which results in less expensive imports and ore expensive exports. Imports increase because of cheaper money creates trade deficit. Depreciation: Weak dollar, buys less of a currency, results in a more expensive imports and less expensive exports. Creates a trade surplus and trade exports.

Balance of Payments: it is a measure of money inflows and outflows between the U.S and the rest of the world. Inflows => Credits Outflows => Debts The balance of payments is divided into three accounts:  i. Current Account ii. Capital/Financial Account iii. Official reserves Current Account: - Balance of trade (net exports): Exports [credit/assets] - Imports [Debt/Liabilities] - Net foreign income/ net investment:income owned by U.S owned foreign assets.Income paid to foreign hill U.S assets. - Net Transfers: Foreign aid & lateral (one direction) ex. U.S given country to another country. (wealthy related, famine, disaster, etc. Another example would be a foreigner working in America and sending money back to their home country. Capital/Financial:  -  Balance of capital ownership includes purchase of both real and financial assets.  Real = real estate Financial = Stocks and Bonds Direct Investment in the U.S ...

Philips curve (PC): represents relationship between unemployment and inflation.  There is a trade off between inflation and unemployment in the short run.  In the short run, inflation increases as the economy expands. During recession, unemployment rises because the economy expands. Long Run Philips Curve (LRPC): occurs at a natural rate of unemployment. represented by a vertical line no trade off between unemployment and inflation in the long run. the economy produces at the full employment level. LRPC will only shift if LRAS shifts Supply Shocks: rapid and significant increase in resource cost  Stagflation: This is where inflation and unemployment increases at the same time.  Shifts of the PC:  if AD changes, we will move points on the SRPC. if SRAS changes, we will move SRPC. SRPC is equivalent to the rate of unemployment.  the natural rate of unemployment = frictional, structural, and seasonal unemployment. Misery Inde...

Dual mission: To keep the economy growing Keep inflation under control Board of governors Chairperson (appointed by the president, approved by the senate) Currently = Jannette Yeilen Famous prior chair chairpersons = Paul Volcker, Alan Greenspan, Ben Bernanke. Job #1: Open market operations (OMO) Moving cash in and out of the economy through New York bond market The fed BUYS BONDS so that the public has more cash. BB=BB The fed SELLS BONDS to remove cash from the economy. SB=SB Job #2: Federal fund rate A higher FFR target slows down inter-bank borrowing and therefore public borrowing.  A lower FFR target speeds up inter-bank borrowing and therefore public borrowing.  Job #3: Discount rate A higher DR means that banks will pay more to borrow from the fed. A lower DR means that the banks pay less to borrow from the fed. Job #4: Reserve Requirement A high RR means that banks have to hold more in vaults and therefore limit private lo...

Increases the money supply... OMO: buys bonds  when the fed buys bonds, a demand is created. Banks can make loans after they set aside the required reserves and the money supply is increased. Discount rate: decreased When the DD is lower, banks can borrow funds from the fed at a lower cost. Banks have more excess reserves to make loans and money supply is increased. Reserve requirement: decreased When the triple "R" is lower. Banks have more excess reserves to make loans and money supply is increased. Decrease money supply... OMO: Sells bonds when the fed sells bonds, the buyers use their funds from the DD. Banks have fewer excess reserves to lend money and money supply demand is increased. Discount rate: increased when the DR is higher, banks will borrow less at a higher cost. Make fewer loans and supply money is decreased Reserved requirement: increased when the triple "R" is higher, banks will have fewer excess reserve to make loans and mo...

Market where the fed and the uses of money interact, thus determining the nominal interest rate. Money demand comes from the households, firms, the government, and the foreign sector. The money supply(ms) is determined only by the federal reserve bank.  Two types of money demand(md): 1. Transaction demand- demand for money as a medium of exchange. 2. Asset demand- demand of money as a store for value. It is dependent upon the interest rate. Money demand is downward slopping because of high interest rate. People are less inclined to hold money and more inclined to hold stocks and bonds. Money supply determined by the feds because the fed has a monopoly over money supply. Because of this, this is why money supply has a vertical curve.  Also vertical because its dependent of the interest rate. Expansionary monetary policy: ms will shift to the right nominal interest rate will decrease discount rate and reserve ratio will both decrease buy bonds(more m...