Economics

Question 0

Uncovered interest rate parity

Answer 0

To forecast future spot rates:

spot*[(1+Ra)/(1+Rb)]^t

Question 1

Covered interest rate parity

Answer 1

No-arbitrage forward rate = spot*[1+Ra(days/360)]/[1+Rb(days/360)]

All rates quoted in a/b

Question 2

International Fisher relation

Answer 2

(1+RnomA) / (1+RnomB) = [1+ E(inflationA)] / [1+ E(inflationB)]

Question 3

Relative purchasing power parity

Answer 3

Expected spot rate = spot*[(1+inflationA)/(1+ inflationB)]^t

Question 4

Mundell-Fleming model

Answer 4

Monetary policy and fiscal policy’s effect on short-term exchange rates

High mobility: depreciation (appreciation) when monetary policy is expansionary (restrictive) and fiscal policy is restrictive (expansionary)

Low mobility: depreciation (appreciation) when monetary policy is expansionary (restrictive) and fiscal policy is expansionary (restrictive)

Question 5

Signs of a currency crisis

Answer 5

• terms of trade deteriorate
• official fx reserves decline
• real exchange rate is substantially higher than the mean-reverting level
• inflation increases
• equity markets experience a boom-bust cycle
• money supply relative to bank reserves increases
• nominal private credit grows

Question 6

Growth rate in potential GDP

Answer 6

= LT growth rate of technology + α(LT growth rate of capital) + (1-α)(LT growth rate of labor)

Question 7

Classical growth theory

Answer 7

Population growth reduces productivity and drives GDP per capita back down after increase in capital or technological progress

Question 8

Neoclassical growth theory

Answer 8

• steady state with constant marginal product of capital but diminishing marginal productivity of capital
• club convergence
• sustainable growth rate of output = growth rate of technology/labor’s share of GDP + growth of labor

Question 9

Endogenous growth model

Answer 9

• Technological progress enhances productivity and growth rate
• Economic growth is unlimited