## Saturday, February 18, 2017

### 2012 Macro Multiple Choice (Unemployment, Inflation, Phillips Curve)

2012 Macro Multiple Choice (Unemployment, Inflation, Phillips Curve)
Cheat Sheet here

Hyperinflation Video

If you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news.

 From the cheat sheet

 From the cheat sheet

### 2012 Macro Multiple Choice (Monetary Policy)

2012 Macro Multiple Choice (Monetary Policy)
Monetary Policy Cheat Sheet here.

### Transactions Demand

On a daily basis people need money on hand for the things that they routinely buy. You have to get a haircut or stop by the store on the way home from work to pick up some milk. You have transactions that you need to conduct, and therefore you have a demand for money. The transactions demand for money is using money as a medium of exchange. Notice in the graph below that the Transactions Demand for Money (DMT) is denoted as a vertical line when graphed against the interest rate. The demand for money as a medium of exchange is independent of the interest rate, because when you are on your way home from work and need to pick up milk, the interest rate does not affect how much milk you buy.

If interest rates increase, then citizens will get more money to have their cash in the bank. They will be paid more to keep their cash in the bank. In essence their opportunity cost of holding cash in their pockets has increased. They will hold less cash in their pockets if banks pay them to deposit it in the bank. How many more times can I say it????

From the cheat sheet -
Let me say tis another way - a decrease in inflationary expectations = reducing the price level, thus reducing AD or RGDP.

(A) decrease in MPS = increase in MPC, therefore people spend more and increase AD
(B) decrease in imports means an increase in exports = AD increases
(C) decrease in MS means an decrease in investment  = AD decrease
(D) increase in deficit means increase in government spending  = AD increase
(E) increase in the price of raw materials is an increase in AS = Cost push inflation

Economies operating below full-employment means that the economy is in recession. The FED would want to have an expansionary policy.

From the cheat sheet.

If investment is more responsive it means that as the money supply is increased and nominal interest rates fall, then investment will be stimulated to higher levels and therefore RGDP increases more.

FED wouldn't want to stimulate growth if the inflation rate is high.

Monetarists

Rational Expectation Theory

### 2012 Macro Multiple Choice (FOREX)

2012 Macro Multiple Choice (FOREX)
Forex Cheat Sheet here.

(A) Demand for a country's exports,, increases the demand in the FOREX for the currency
(B) Money supply increases, more money less value
(C) Travel abroad increases, citizens must exchange their currency for the currency of the country travelled to,, that would increase the supply of the currency in the FOREX which would cause the value to fall.
(D) Interest Rates decreasing means less foreigners would invest in our country, less demand for our currency.
(E) Tariffs decrease, we buy more imports and the supply of our currency in the FOREX increases driving down the value

If the US\$ value decreases, then our goods are relatively cheaper than the foreign goods, so our sports will increase. The foreigners purchasing power has increased because the value of the US\$ has fallen.

Country A has a higher inflation (PL, Price Level) than country B,,, if the PL in country A is rising, then their goods are getting more and more expensive. Country B is buying less and less of them. Therefore, there is less and less demand for country A's goods and less need to go to the FOREX and buy country A's currency. So less demand for country A's (Goods) currency means the value of A's currency falls.

Let me say this differently - The Indian Rupee will get stronger and the Japanese Yen will get weaker.

(A) India's inflation rate increases relative to Japans. - This means that India's goods will become more expensive leading to less demand in the FOREX, for India's currency and the value of India's currency will therefore decrease.
(B) India has a trade deficit with Japan. - This mean that India has more imports from Japan than exports, so more imports means that the supply of the rupee is increasing in the FOREX and therefore the value of the rupee is decreasing.
(C) Japan enters a recession - meaning that the PL of Japanese goods will fall leading to Indian citizens to import more of them and the rupee's value will decrease. (see above)
(D) India's money supply increases, and therefore nominal interest rates fall, investment and consumption increase, aggregate demand therefore increases along with Indian incomes (Y), and with higher incomes comes higher imports. (see above)
(E) Real interest rates in India increase, attracting Japanese investors to buy Rupees to invest in Indian interest assets (Bonds) etc,, In the FOREX the demand for Rupees increases driving up the value.

WE don't see these types of questions very often on the AP exams.

(A) they both do this
(B) they both do this
(C) Neither do this
(D) Neither do this
(E) Tariffs are a tax and the tax money goes to the government.

### FOREX Cheat Sheet

FOREX Cheat Sheet