FINAL EXAM: ECO201 Pricniples of Macroeconomics Maximum possible raw score = 40 points 1) Here’s…


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FINAL EXAM: ECO201 Pricniples of Macroeconomics Maximum possible raw score = 40 points 1) Here’s… 1 answer below » FINAL EXAM: ECO201 Pricniples of Macroeconomics Maximum possible raw score = 40 points 1) Here’s a quote from Fed head Janet Yellen on at a meeting in Cleveland on July10 this year. (see www.federalreserve.gov then click news and events…Regarding inflation, as I mentioned earlier, the recent effects of lower prices for crude oil andfor imports on overall inflation are expected to wane during this year. Combined with furthertightening in labor and product markets, I expect inflation will move toward the FOMC's 2percent objective over the next few years. Importantly, a number of View complete question » FINAL EXAM: ECO201 Pricniples of Macroeconomics Maximum possible raw score = 40 points 1) Here’s a quote from Fed head Janet Yellen on at a meeting in Cleveland on July10 this year. (see www.federalreserve.gov then click news and events…Regarding inflation, as I mentioned earlier, the recent effects of lower prices for crude oil andfor imports on overall inflation are expected to wane during this year. Combined with furthertightening in labor and product markets, I expect inflation will move toward the FOMC's 2percent objective over the next few years. Importantly, a number of different surveys indicatethat longer-term inflation expectations have remained stable even as recent readings oninflation have fallen. If inflation expectations had not remained stable, I would be moreconcerned because consumer and business expectations about inflation can become selffulfilling. Explain why the FOMC is concerned not only about actual recent inflation ratesas measured by the CPI, but also about longer term inflation expectationsremaining “stable” In particular, what is the problem if inflation expectationsstart to converge to an opinion that inflation will fall to “0” or less? 4pts 2) Suppose the CFO of an American corporation with surplus cash flow had $100million to invest last July 15 and the corporation did not believe it would need toutilize these funds to retool or expand production capacity for 1 year. Suppose furtherthat the interest rate on 1 year CD deposits in US banks was .5%, while the rate on 1year CD deposits in England (denominated in British Pounds) was 2% at the time.Suppose further that the exchange rate at that time was $1.68 per British pound . A) Suppose that now a year later the exchange rate is $1.55 per US pound. What rateof return did the CFO earn on the investment in the British CD? (Note: a specificnumeric answer is required for full credit.) 4pts. B) What must the CFO have expected about the value of the British pound in $ todayto believe that investment in British CD’s was more profitable than investment in USCD’s last July? 2pts 3) Between February 2008 and Summer 2009, the Fed supplemented its open marketoperations with a greatly expanded program of direct lending (both overnight and shortterm 28 and 84 day loans) to commercial banks, investment banks, brokerage andprimary dealer units of bank holding companies. It also agreed to accept a wider range ofshort term securities (instead of accepting only T-Bills) as collateral on these loans andeven initiated a program to buy commercial paper from money market funds.Explain why the Fed created all these extraordinary direct lending facilities instead ofsimply relying on traditional open market purchases of Treasury securities.4 pts 4) As conditions in short term financial markets improved by summer of 2009 the Fedclosed down its lending under these programs. However, throughout the next 4 years theFed increased substantially its purchases of longer term mortgage backed securities andTreasury notes from banks in a series of 3 “Quantitative Easing” (QE) Programs. A) Assume that both lender & borrower confidence levels start to return to normal andfinancial and physical investment levels start to rise much more strongly in the nex…

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28.99