ECO 350: Money and Banking: Professor Griffy
ECO 350: Money and Banking: Professor Griffy
Professor Griffy
UAlbany
Announcements
I I know online courses can be a bit of a mess, but I hope this
course was fairly constistent and predicatable.
I I’ve actually covered all the material I wanted to cover, so I
will be having a review session on Thursday at 9am rather
than having an additional course at the office hours Zoom link.
I Note: Please fill out online evals!
I Final format:
1. Cumulative.
2. Roughly 20-25 multiple choice questions.
3. 2 Short answer questions.
4. Open note, open book, but you probably want to review
because there won’t be as much time on this exam.
I Probably:
I You will have 1.5 hours to do the multiple choice once you
start.
I You will have 3 hours to do the short answers once you start.
I Don’t start them at the same time! Otherwise you will have
to complete them both.
Grading Update
I Today: remind you of the topics from the first two parts of
the semester.
I Go through a few key concepts.
I Since there’s a lot of material, I will highlight (in red) most
likely short answer topics in red from midterm.
I i.e., the short answer will be from one of these topics, but
specific parts might involve knowledge from other topics.
I Chapters: 1-15, 19-20, 22.
Topics Covered prior to midterm
I Key topics:
1. Calculating present values.
2. Yield to maturity vs. coupon rate.
3. Bond types, and calculating their values.
4. Definitions and need for money.
5. Determining prices with equilibrium.
6. The market for bonds and the market for money.
7. Default risk, and other sources of risk.
8. The yield curve.
9. Transaction costs, adverse selection, and moral hazard.
10. Regulation and asymmetric information.
11. Pricing stocks, rational expectations, and the efficient market
hypothesis.
12. Assets, liabilities, and Bank’s Balance Sheet.
13. Interest rate sensitivity.
14. Bank Regulation.
Topics after midterm
I All topics are fair game.
I Key topics:
1. Moral Hazard and Too Big to Fail.
2. Structure of the banking industry; definitions of bank types.
3. Securitization, financial derivatives, & other financial
innovations.
4. Financial crises & balance sheet deteriorations.
5. Structure of the Federal Reserve.
6. Tools of Monetary Policy.
7. Theories of Money Demand
8. Investment-Savings Curve
9. Aggregate Demand and Aggregate Supply
I The primary topic of the short answer questions will come
from one of these or the highlighted topics on the previous
slide.
I Some parts of the short answer might involve knowledge from
other parts of the course.
I One will come from this material the midterm.
The Market for Bonds
I How is the price of a bond determined?
I In a market with supply and demand.
Comparative Statics
I People with bad quality cars will try to pass their’s off as good.
I At a price of $7500, nobody with a car with a higher value
willing to sell (i.e., with quality greater than 0.75)
I Ultimately, only low quality cars show up in market.
Iter. Max W Min W Ave W Market price
1 1 0 0.5 $7500
2 0.5 0 0.25 $6250
3 0.25 0 0.125 $5625
4 0.125 0 0.0625 $5312.50
∞ 0 0 0 $5000
Too Big to Fail
1 d +X
Y = [C̄ +Ī−d ×f¯+Ḡ +NX
¯ −mpc×T̄ ]× −r ×
1 − mpc 1 − mpc
(1)
IS Example
I Suppose the following:
1. C̄ = 10, Ī = 5, Ḡ = 5, NX
¯ =5
2. f = 2, T̄ = 4
¯
3. mpc = 0.7
4. d = 0.02, X = 0.01
I If government spending increased from 5 to 10, what would
happen to the curve?
I Since we have numbers, we can calculate how much it would
shift by: (pick r = 0):
1
(10 + 5 + 0.02 × 2 + 5 + 5 − 0.7 × 4) × = 73.67
1 − 0.07
(2)
1
(10 + 5 + 0.02 × 2 + 10 + 5 − 0.7 × 4) × = 90.53
1 − 0.07
(3)