Manu Agarwal

Roll No. 02

PG RM 10-12

Economics Assignment
1. A monetary expansion in the long run increases price level and exchange rate.

2. In case of sterilized intervention central bank buys foreign exchange issuing its own bonds.

3. Dirty float refers to a system of floating exchange rates in which the government or the
country's central bank occasionally intervenes to change the direction of the value of the
country's currency.

4. Purchasing power parity (PPP) is a theory which states that exchange rates between
currencies are in equilibrium when their purchasing power is the same in each of the two
countries. This means that the exchange rate between two countries should equal the ratio of
the two countries' price level of a fixed basket of goods and services. 

5. Monetary Authority of Singapore

$ MILLION

ASSETS LIABILITIES OTHE

R
DOMESTIC ITEMS
CREDIT
RES FORE (NET
FOR GOVER )
ERV IGN
EIGN NMENT
END OF TOT GOVER PRI E LIABI
ASS DEPOS
PERIOD AL NMENT VAT MON LITIE
ETS ITS
E EY S
SEC
TOR
1 2=3 3 4 5 6 7 8
+4
193, 7,0  
7,009. 23,3 1,811. 107,77
 2005 601. 10.  0.6 67,63
6 95.8 1 1.5
2 2 3.0
 209, 6,6  
6,608. 25,7 1,837 108,711
 2006 746. 08. 0.3 80,04
2 56.5 .4 .5
8 5 9.9
235, 6,5
6,501. 28,0 1,865 108,94 103,31
 2007 691. 01. 0.2
7 61.0 .0 8.1 9.4
6 9
251, 6,8  
6,860. 34,1 1,732 132,711
 2008 318. 60. 0.2 89,61
1 22.7 .3 .3
2 3 2.2
 2009  264, 7,3 7,381. 0.2 36,3 3,23 117,07  115,2
533. 81. 6 44.0 8.6 7.7 54.7
2 8
 
251, 6,8
2008  No 6,860. 32,3 1,735 127,35  97,05
633. 60. 0.2
v 0 48.7 .5 5.0 4.5
5 2
251, 6,8
          De 6,860. 34,1 1,732 132,711  89,61
318. 60. 0.2
c  1 22.7 .3 .3 2.2
2 3
 
253, 6,6
  6,669. 34,8 1,742 130,00  93,59
531. 69. 0.2
2009 Jan 7 66.8 .6 0.8 1.2
5 9
253, 6,8
         6,884. 33,4 1,742 134,43  91,03
757. 84. 0.2
Feb 2 33.3 .5 5.5 0.9
8 4
254, 6,8
         6,889. 34,4 1,743 118,99  105,7
106. 89. 0.2
Mar 1 61.3 .2 3.6 98.0 
8 3
252, 7,0
         7,088. 34,1 1,633 122,25 101,45
369. 88. 0.2
Apr 2 21.7 .4 2.3 0.7
7 4
249, 7,2
         7,286. 33,3 1,633 124,87  96,55
080. 87. 0.2
May 8 05.6 .8 5.4 3.0
8 0
       251, 7,2 7,286. 0.2 35,1 1,636 126,09   95,9
Jun 570. 86. 5 58.7 .5 2.3 69.8
 6 7
7,2  
        251,1 7,286. 35,6 1,601 129,49
86. 0.2 91,75
Jul 96.2 1 33.1 .8 1.4
3 6.2
254, 7,6  
          7,680. 35,2 3,04 129,47
571. 80. 0.2 94,45
Aug 6 89.8 0.4 0.7
6 8 1.5
256, 7,9  
          7,982. 35,4 3,23 127,39
769. 82. 0.2 98,70
Sep 7 13.5 8.7 9.4
1 9 0.4
258, 7,7
          7,781. 34,5 3,23 127,14  101,4
646. 81. 0.2
Oct 6 71.2 8.6 8.2 70.4
6 8
262, 7,3
          7,381. 35,3 3,23 121,72 109,16
076. 81. 0.2
Nov 6 25.8 9.0 5.3 7.7
0 8
264, 7,3
          7,381. 36,3 3,23 117,07 115,25
533. 81. 0.2
Dec 6 44.0 8.6 7.7 4.7
2 8
 
7,3
  2010 267, 7,381. 36,3 3,23 117,261 117,68
81. 0.2
Jan  171.5 6 71.7 8.2 .3 2.1
8
265, 7,5
          7,574. 37,2 3,23 121,52 110,58
006. 74. 0.2
Feb 1 29.4 7.4 9.7 4.3
5 3
276, 8,2
          8,274. 36,3 3,06 119,58 125,6
326. 74. 0.2
Mar 3 49.7 6.9 0.5 04.0
6 5
279, 7,8
          7,874. 36,7 2,97 119,80 127,7
421. 74. 0.2
Apr 2 74.2 5.0 6.7 39.8
3 4
278, 7,8
          Ma 7,883. 37,3 2,98 124,65 121,10
234. 83. 0.1
y 0 78.3 3.9 1.2 4.0
3 1
          Ju 280, 7,8 7,883. 0.1 37,0 2,98 127,50 120,6
n 307. 83. 0 31.9 3.3 7.2 68.1
 4 1
281, 7,4
          7,482. 37,9 2,97 123,85 124,5
919. 82. 0.1
Jul 8 75.9 6.3 8.3 91.4
0 9
280, 7,6
          7,681. 38,0 2,94 127,85 118,90
026. 81. 0.1
Aug 6 03.3 3.7 7.7 3.0
0 7
282, 7,6
          7,681. 37,8 2,95 125,37 124,0
633. 81. 0.1
Sep 4 94.5 5.7 2.7 92.4
8 5
286, 7,6
          7,681. 38,8 2,93 124,93 127,7
802. 81. 0.1
Oct  2 16.3 7.3 5.6 94.8
7 3
7,4
          No 288, 7,480. 39,5 2,89 127,31  125,8
80. 0.1
v P 151.7 5 37.8 6.5 2.5 85.5
6

6. In the monetary approach, the focus of attention is on the balance of payments (or the
money account) with full employment. The monetary approach emphasizes the role of the
demand for and supply of money in the economy.

7. Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are
provided via debt. It is the ratio of total debt (the sum of current liabilities and long-term
liabilities) and total assets (the sum of current assets, fixed assets, and other assets such
as 'goodwill').

Debt Ratio = Total Debt/Total Assets

8. In monetary economics, the quantity theory of money is the theory that money supply has
a direct, proportional relationship with the price level. According to the quantity theory of
money there is a direct relationship between prices, income, and the amount of money
circulating in the economy.

The quantity theory of money is part of the equation of exchange, whereby the value of
transactions carried out in an economy must be equal to the amount of money in the
economy by the number of times the money changes hands: MV = PY (P = price level, Y
= output level, M = amount of money,  v = number of times that money changes hands, is
the velocity of circulation of money)

9. Usually there are three defined motives of holding money:

1. Transactions Motives - this is the most obvious reason for holding money. We need
money to be able to spend it, and so hold balances of money appropriate for that. Like
the amount of money that you have in your pocket, wallet or purse.

2. Precautionary Motives - we also hold money in case we need to spend it. Unexpected
bills or contingencies may mean that we need to hold a little extra money in case. Like
the money we hold in banking accounts.

3. Speculative Motives - People have to decide how they are going to hold their money.
There are of course a number of different ways, which can briefly split it into interest
bearing assets or non-interest bearing assets. The interest rate and the ease of access
may be two important factors in determining this decision. The speculative demand for
money is the amount held for the potential purchase of assets.

10. The simple answer is no. Money is defined as the commonly accepted medium of
exchange. The accepted medium of exchange in India is Rupees. No-one accepts a line of
credit as a medium of exchange in transactions.
If, however, someone makes a payment using his credit card then actual money is credited to
the seller’s checking account. The money supply increases after the payment has been made.
The bank issuing the credit card essentially makes a loan to the person using the credit card
and actual money is credited to the seller's account.
But even then, it is not the credit card balance in itself that adds to the money supply, but
the money appearing on the seller's checking account.
Only in that sense can one make a connection between the existence of credit cards and the
money supply.

11. Expansionary fiscal policy involves government attempts to increase Aggregate demand. It
will involve higher government spending and / or lower tax. In theory, higher government
spending will increase Aggregate Demand and lead to higher economic growth.

12. The Impossible Trinity is the Dilemma in international economics suggesting it is impossible
to have all three of the following at the same time:
  A fixed exchange rate
 Free capital movement (absence of capital controls)
 An independent monetary policy

13. The indicator is obtained by deflating the nominal effective exchange rate (a measure of
the value of a currency against a weighted average of several foreign currencies) by a
suitable effective deflator, in this case the nominal unit labour costs in total economy.

14. The so-called Dirty Floating or Managed floating is a rate of exchange regime, with which
the rate of exchange is in principle flexible, the central bank however now and then
intervened around its rate of exchange goal to reach. Differently than with firm rates of
exchange the issuing bank commits itself however neither explicitly nor implicitly to keep a
fixed course stable can thus more flexibly react.

15. Current account deficit is of necessity financed by an offsetting capital inflow

16. The liquidity trap, in Keynesian economics, is a situation where monetary policy is unable
to stimulate an economy, either through lowering interest rates or increasing the money supply.
A situation in which prevailing interest rates are low and savings rates are high,
making monetary policy ineffective. In a liquidity trap, consumers choose to avoid bonds and
keep their funds in savings because of the prevailing belief that interest rates will soon
rise. Because bonds have an inverse relationship to interest rates, many consumers do not
want to hold an asset with a price that is expected to decline.

17. In fiscal and economic policy parlance, monetization of fiscal deficit is broadly defined
as the creation of money by the Central Bank to fund the fiscal deficit of the Government.
The money so created is normally provided to the Government by the Central Bank against
special securities created for this purpose, or through the purchase of general Government
Debt, which would otherwise be sold in the open market.

18. In economics, crowding out is any reduction in private consumption or investment that
occurs because of an increase in government spending. If the increase in government
spending is not accompanied by a tax increase, government borrowing to finance the increased
government spending would increase interest rates, leading to a reduction in private investment.
Crowding out occurs when government enters a market as a buyer, increasing demand and
raising the price. This is turn prices out some buyers from the market. These priced out
buyers have been "crowded out" by the government.

19.  “Full” crowding out (or a vertical LM curve means that an increase in aggregate
demand brought about by increased Government spending causes such a rise in the interest
rate that private investment falls by an amount that exactly offsets the expansionary effect of
the initial change in G.

20. The real-balance effect is one of three basic effects that indicate why aggregate
expenditures are inversely related to the price level. The real-balance effect works like this: A
higher price level decreases the purchasing power of money resulting in a decrease in
consumption expenditures, investment expenditures, government purchases, and net exports. A
lower price level has the opposite effect, causing an increase in the purchasing power of
money which results in an increase in consumption expenditures, investment expenditures,
government purchases, and net exports.