Reading 16.Monetary and fiscal policy
16a. Compare monetary and fiscal policy.
1.Fiscal policy 财政政策refers to a govemment's use of spending and taxation to influence economic activity.
政府使用支出和税收手段来宏观调控。
A.平衡The budget is said to be balanced when tax revenues = government expenditures.
B.预算盈余budget surplus occurs when government tax revenues exceed expenditures,
C.预算赤字budget defidt occurs when government expenditures exceed tax revenues.

2.Monetary policy 货币政策refers to the central bank's actions that afe the quantity of money and credit in an economy in order to influence economic activity.
中央银行通过调节货币总量和信用总量来影响经济活动的行为
扩张性货币政策expansionary (or accommodative or easy）增加
when the central bank increases the quantity of money and credit in an economy.
紧缩性货币政策contractionary (or restrictive or tight).when the central bank is reducing the quantity of money and credit in an economy, the monetary policy is

无论哪种政策，政策制定者使用达到价格稳定，保证经济积极增长的目标。
Fiscal policy used as a tool for redistribution of income and wealth.
收入和财务重新分配的工具。
16.b. Describe functions and definitions of money.
Money 定义为交换媒介，更有助于间接交换。
Money has three primary functions:
1）as medium of exchange or means of payment
交换媒介和支付手段

2. as a unit of account
   计价单位
   3）provides a store of valuve because money receive for work or goods now can
   价值储存be saved to purchase goods later.

Narrow money 狭义的货币is the amount of notes (currency) and coins in circulation in an economy plus balances in checkable bank deposits.
Broad money广义的货币 includes narrow money plus any amount available in liquid assets, which can be used to make purchases.任何可以被用来购买商品或服务的肯用的流动资产
广义货币比狭义货币的流动性差。
The narrowest measure, M1, is restricted to the most liquid forms of money; 流动性最强的货币，包括旅行支票、活期存款、其他可以兑换的银行存款。
M2 includes M1, 还包括储蓄账户，低于10万美元的定期账户存款，货币市场上的互助基金的余额。

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1. Transaction demand交易需求
2. Precoutionary demand预防性需求
3. Speculative demand: 投资性需求
   16e.Describe the Fisher effect.
   nominal interest rate=real interest rate+expected inflation+risk premium
   16f. Describe roles and objectives of central banks.
   央行的主要角色：
4. Sole spplier of currency货币供应者
   拥有货币的发行权
   legal tender
   fiat money
5. banker to the government and other banks
6. Regulator and supervisor of payments system
7. Lender of last resort最后的借款者
8. Holder of gold and foreign exchange reserves黄金和外汇储备的持有者
9. Conductor of monetary policy货币政策的实施者
   primary objective of a central bank
   -to control inflation to promote price stability
   high inflation leads to menu costs菜单成本（如由于频繁改变价格而产生的成本） and shoe leather costs皮鞋成本
   central banks have other stated goals
   a. stability in exchange rates with foreign currencies
   b.full employment雇佣率
   c.sustainable positive economic growth
   d. moderate long-term interest rates
   发达国家一般通胀率为2%-3%
   0通胀不被广泛使用的原因是通货紧缩的风险对于国家经济发展是负面的。
   美联储和日本央行没有明确的目标通胀率。
   US Fed-has additional goal of max employment and moderate long-term interest rate.
   Bank of Japan -because deflation
   pegging the exchange rate with dollar盯住美元，来确定目标外汇汇率水平
   16g. Contrast the costs of expected and unexpeced inflation.
   16h. Describe tools used to implement monetary policy
   中央银行使用三种货币政策工具来实施货币政策，包括：
   a.policy rate
   Fed: discount rate/ European central bank: refinancing rate
   b.reserve requirements
   c.open market operations
   16i. Describe the monetary transmission mechanism
   monetary transmission mechanism货币传导机制
   -a change in monetary policy, 特别是central bank's policy rate, affect the price level and inflation.
   该机制有四种途径
   short-term rates, asset values,currency exchange rates and expectation
   通过加息的方式，考察在紧缩货币政策下，传导机制如何起作用。
   a. Bank's short-term lending rate
   b.bond prices
   c. both consumers and businesses may decrease their expenditures because their expectations for future economic growth decrease.未来预期悲观
   d.利率提高，吸引外资提高对债券类产品的投资额度，刺激本币升值，提高出口产品，削弱对本国进出口产品的需求。
   综上，提高政策利率将降低总需求，对物价产生压制作用。
   同理，降低政策利率将通过相同的途径，对经济产生相反的影响。
   16j.Describe qualities of effective central banks
   3 essential qualities：
   a.independence
   b.credibility
   c.transparency
   16k.Explain the relationships between monetary policy and economic growth,inflation, interest and exchange rates.
   the effects of a change to expansionary monetary policy
   the transmission mechanism for a decrease in interbank leading rates affects 4 things
   a. market rates
   b.asset prices
   c. firms and individuals raise expectations for economic growth and profitability
   d. domestic currency depreciates
   16I. Contrast the use of inflation,interest rate and exchange rate targeting by central banks.
   interest rate targeting
   inflation targeting
   exchange rate targeting
   16m. Determine whether a monetary policy is expansionary or contractionary.
   real trend rate-an economy's long-term sustainable real growth rate
   neutral interest rate
   =real trend rate of economic growth +inflation target
   contractionary(expansionary)
   16n. Describe limitations of monetary policy.
   bond market vigilantes
   liquidity trap
   quantitative easing
   Monetary Policy in Developing Economies
   16o.Describe roles and objectives of fiscal policy.
   budget surplus
   budget deficit
   Discretionary fiscal policy
   automatic stabilizers
   16p.Describe tools of fiscal policy, including their advantages and disadvantages.
   Fiscal policy tools include spending tools and revenue tools.
   spending tools:transfer payment
   current spending
   capital spending
   revenue tools:direct taxes, indirect taxes,
   disposable income
   fiscal multipler
   ricardian equivanlence
   16q. Describe the arguments about whether the size of a national debt relative to GDP matters.
   debt ratio-the ratio of aggregate debt to GDP.
   arguments for concerned with the size of fiscal deficit:
   crowding-out effect
   arguments against with size of fiscal deficit:
   16r.Explain the implementation of fiscal policy and difficulties of implementation.
   recognition lag
   action lag
   impact lag
   misreading economic statistics
   crowding-out effect
   supply shortages
   limits to deficits
   multiple targets
   16s. Determine whether a fiscal policy is expansionary or contractionary.
   16t. Explain the interaction of monetary and fiscal policy
   expansionary fiscal and monetary policy
   contractionary fiscal and monetary policy
   expansionary fiscal policy+contractionary monetary policy
   contractionary fiscal policy+expansionary monetary policy