Reference no: EM131094275

Open Economy Trilemma

i. List the three scenarios.

ii. Explain which one of the three scenarios fits Greece.

Payment Systems.

i. Explain One-bank Credit System (be able to explain why credit as a means of payment implies an elastic supply of money).

ii. Explain Multi-bank Credit System (explain the ways in which banks can pay each other; why is a clearinghouse superior?)

iii. Explain the di?erences between the two modern private and public payments systems (CHIPS and FedWire).

The Fed Funds Market and Final Settlement.

At a given point in time during the day, does a bank need to have a positive reserve balance with the Fed in order to make a payment? What happens when a de?cit bank owes money to the Fed at the end of the day? (what are their options?)

Funding and Payment.

i. Other than customer deposits, how can a bank fund a loan if it doesn't have any reserves to lend (illustrate using T-accounts and explain what is going on).

ii. From a bank's perspective, what does it mean to say that "I'm paying you today by promising to pay you tomorrow."?

Bretton Woods.

At the Bretton Woods Conference in 1944, two proposals were made to manage inter-national payment imbalances. What were these two plans? How were they supposed to work? What was the primary di?erence between them? Which plan ultimately prevailed (and why)?

Sectoral Balances.

Using the sectoral balances identity [(S-I)+(T-G)=NX], discuss the implications of a country running persistent trade de?cits (i.e., what must happen to the government balance and/or the private sector balance ("net savings")?). Speci?cally, is it possible for a government to run a "balanced budget" with a trade de?cit and also maintain positive private sector "net savings"?