Review for he iderm Exm Rememer! Gross re e re Vriles suh s,, /, p / p, r, d R re gross res 2 You should kow he disiio ewee he fesile se d he udge se, d kow how o derive hem The Fesile Se Wihou goverme purhses:, 2,, 2, g Wih goverme purhses : The golde rule lloio is deermied he poi of ge ewee he fesile se lie d idifferee urve he slope of oh lies re he sme The Budge Se Firs period udge osri:, m Seod period udge osri: 2, m Lifeime udge osri:, 2, These equios re he si seup The m ler uder differe ssumpios, suh s whe xes, rsfers d pils re preseed The moer equilirium lloio is deermied he poi of ge ewee he lifeime udge se lie d idifferee urve he slope of udge se lie equls he slope of idifferee urve 3 You fid he vlue of fi moe solvig moe-mrke lerig odiio oe-rke Clerig Codiio Suppl of fi moe: Demd for fi moe:, Re of Reur o Fi oe The re of reur o fi moe ells ou how m goods ou oi i he fuure if oe ui of he good is sold for moe od
,, Prie level Prie is os of eh good: / p Iflio: / p p 4 You should kow he osequees of iresig sok of fi moe oe reio e irodued io he eoom mes of susidies or seigiorge You should e le o expli i whih ses he moer equiliri i he golde rule, d i whih ses he do o The moe suppl expsio: Goverme udge osri wih susidies o old people: Goverme udge osri wih seigiorge: G 5 You should udersd he differee mog ieriol moer rrgemes Wh does i me foreig urre orols, ooperive siliio d uilerl defese of he exhge re? Foreig Curre Corols The vlue of fi moe is idepedel deermied eh our s moe demd d suppl, Exhge re wih foreig urre orols: e
Wihou Foreig Curre Corols People re free o hold d use he moe of our We o loger deermie he moe suppl d demd of eh our seprel The world moe-mrke lerig odiio: e,, The exhge re o e deermied i his se Cooperive siliio is he firs soluio o he ideermi of he exhge re Boh ouries gree o work ogeher priig more moe i order o keep he exhge re fixed Uilerl defese is he seod soluio Foreig our will o oopere I order o mii he fixed exhge re, ol domesi our will hoor is pledge o exhge urre xig is ow iie 6 Wih he presee of lerive sses, i order o eourge people o hold sse simuleousl, he re of reur o ever sse mus e ideil We refer o his proper s re-of-reur equli ; ll sses re perfe susiues 7 I he se of imperfe susiues, oher sses ield he higher reur h moe We ssume h people sill hold moe euse i is more liquid 8 You should kow he defiiio of liquidi; wh moe is more liquid h oher sses? You lso should e le o derive he udge osri uder hree-period lived model Firs period udge osri:, m k Seod period udge osri: 2, m Third period udge osri: 3, 2 Xk Lifeime udge osri:, 2, 3, 2 X X is wo-period re of reur o pil, while x X is oe-period re of reur o pil Tol oupu: GDP X k 2 2 9 Whe sses ield rdom re of reur, we would expe re-of-reur equli o hold o verge The expeed re of reur is mesured he
summio of ll possile res of reur muliplied heir respeive proiliies E r π r π 2r2 π r 0 You should e le o expli he differee ewee he omil ieres re R omil re of reur o lo d he rel ieres re r rel re of reur o lo p R r p You should kow wh we eed o hve fiil iermediios d erl ks How ks mke profis? Wh does i me fiil iermediries? Wh re odiios d ke eoomi vriles oe reserve requiremes d erl k ledig irodued? 2 ke sure h ou kow he defiiio of differe mesures of moe; 0,, 2d 3 0 iludes ol urre; i is ol fi moe sok i our model is lled he ol moe sok; i iludes 0 plus highl liquid sses Wh is he relio ewee d? 3 Uder ompeiive mrke, here exis m ks i he eoom These ks will ompee offerig people higher ieres re o deposis The ieres re will fill equls o he reur o sses ks hve Wihou Reserve Requiremes Rel re of reur o deposis or rel ieres re: r * x X Wih Reserve Requiremes oe-mrke lerig odiio: γ h oe h ow reserve requiremes represe he ol demd for fi moe euse people o loger hold fi moe Prie level: p γ h Rel ieres re: r* γ γ X oe h ow ks hold wo pes of sses; reserved fi moe d pil Tol oupu: GDP Xk X γ h 2 2 2 2
oe h Xk 2 is he oupu produed pils people ivesed wo periods go X γ h 2 is he oupu produed pils ks ivesed wo periods go γ h is he mou ks ives from deposis fer sisfig he reserve requiremes Wih Cerl Bk Ledig Bks ow hve wo soures o quire reserve requiremes: o o-orrowed pr: o Borrowed pr: δγ h, where δ is he frio of k s reserves fied los from he erl k ψ is he re hrged he erl k oe-mrke lerig odiio: γ h δγ h Prie level: p γ δ h Rel ieres re: r * γ [ γ δ ] X ψδγ Tol oupu: GDP Xk X [ γ δ ] h 2 2 2 2