🙋 Student Q&A (Lecture 4)

Click here to learn about timestamps and my process for answering questions. Section agendas can be found here. Email office hour questions to rob.mgmte2000@gmail.com. PS1Q2=“Question 2 of Problem Set 1”

📅 Questions covered Saturday, Feb 21

🕣 4:28pm
❔ When we request a re-grade through email to the Harry, what is the turnaround time for the re-grade? If we email our re-grade request before the 7 day from release of scores but we don’t hear back before the 7 day deadline, is the re-grade request still valid? And what are the next steps if there ever is a scenario where there is no reply?

✔ watch recording

🕣 4:31pm
❔ For the Assignments, do we get marks for showing our work or is the final output only what matters?

✔ Must show work. There is a general expectation in this class that people will show their work. Often he will give an explicit key to people to say to show your work, but when in doubt, you should probably show your work.

If you’d like, sometimes if you lose points on a question, he will paste in the rubric that he uses, and you can check to see if there are actually points allocated for that specific sub-question for showing the work. You don’t know in advance, so if you really want to be safe, it’s a good idea to always show your work.

It’s also a good idea in general to explain things, because you don’t know that could be on the rubric as well. When in doubt, yeah, explain things and show your work.

How much work do you need to show? You just want to show enough so that they can basically show the work that you would have done to figure out the answer. I’ve talked about this a bunch in earlier sections, so you can go back for some of the student questions that I’ve discussed in previous weeks, and there’s probably more on there. You can check the time stamps to see the recording if you want.

🕣 4:32pm
❔ How is the equilibrium set in the money market?

✔ We discussed earlier, so watch the portion in the recording when we were covering those slides. It was relatively recent during today’s recording. The bottom line is that it is set via supply and demand via the money supply and the money demand curve.

🕣 4:33pm
❔ Update on the Fed

✔ Because we received this question earlier, I tried to give you a little bit of the flavor of some of the things which have been happening recently with the Fed, and in particular with the Fed, the interactions between the Fed and various presidents. It’s kind of unique times in Federal Reserve history.

There’s a little bit more. We can talk about some of the information which has come out recently. I guess I’ll do that last, so that people who don’t want to watch that don’t have to.

🕣 4:35pm
❔ Chair has effective control over the system, even without legal power. Can government ignore?

✔ Typically, there’s a bit of a convention and a tradition that the other six members of the Board of Governors will vote with the Chair of the Board of Governors. They are not legally obligated to do so, but they usually decide to do so. They kind of work together, and if there’s dissent, that can lead to uncertainty. They feel usually that it’s best to support the Chair and go with that, because the seven governors collectively make seven of the twelve votes that does give them effective control. At any moment, various governors could decide not to vote with the Chair of the Fed if they felt that was the right thing to do, and I’m sure they have done that and I’m sure they will do it in the future.

🕣 4:36pm
❔ How is Chair selected? What determines that?

✔ covered earlier

🕣 4:36pm
❔ When they lower the discount rate, how do they lower the various rates?

✔ https://fredaccount.stlouisfed.org/public/dashboard/13160

🕣 4:37pm
❔ External monitor? Ultrawide?

✔ You can have one monitor set up when you’re doing the exam, but there are ways to turn off the internal monitor on your laptop. If you can do that (which isn’t that hard), I think there’s this clamshell approach; just put it into Google to figure out how to do it. If you need to help, you can talk to me, though I don’t have a Mac. You can use an external monitor if you turn off the internal monitor. This is something that the Proctorio readiness quiz is incredibly helpful for, so just try it. Go to AI and say, “Hey, I need to turn off the internal monitor on my MacBook and only use the external monitor. How do I do this?” You try it out once you’ve got it working, then you go into the Proctorio readiness quiz and see if it really works with Proctorio.

Is an ultra-wide monitor again? I would assume that an ultra-wide monitor is perfectly fine. But again, you would test that using the Proctorio Readiness Quiz. The Proctorio Readiness Quiz and the actual exam will be delivered on exactly the same set of platform with exactly the same settings, so if it works in one place, it works in the other.

🕣 4:39pm
❔ How does our federal reserve interact with other central banks. Inter central bank communication.

✔ All of the central banks in the world tend to be in communication with each other to ensure smooth international financial transactions and coordination in a more peaceful world. Sometimes they’ll even have exchanges of people, human resources, and they all want to learn from each other. They’re all very kind of globally-minded people trying to make the world a better place.

I was just in Korea, visited the central bank there, and they talked a lot about the over exchanges with America. Obviously, Korea has a tight relationship with the US, so there’s a lot. If you’re interested in learning more, one, there’s the Bank for International Settlements, known as the BIS, and the Basel Committee of Bank Supervision. Those are two things that are involved with this.

🕣 4:41pm
❔ Question on open market operations, The Fed buying and selling bonds. How is that different than just lending out money to banks? is there a different consequence on the economy?

✔ I did my best to go into detail on this question as we were doing the slide review. It’s part of the reason why we did the in-depth slide review that we did. Hopefully it’s clear that when the Fed buys and sells bonds, it’s buying bonds from a bond trader, and the bonds are IOUs from the US federal government. When we talk about a treasury bond that is an IOU from the US federal government, the Federal Reserve is buying those IOUs from bond traders. It’s not lending money to banks at all! It’s not doing that. It’s just buying bonds from traders, and in the process of doing that, how does it pay the bond trader? It transfers newly created reserves to the bond traders’ banks and says, “Credit those to the bond traders’ checking deposits.” We went into that in detail. That’s why we did it; it often comes up.

Okay, next, lending money: the bank is totally different. That’s when you create new reserves, and we talked a little bit about the mechanics of that. You create new deposits of the Fed, which are essentially numbers in a computer where you say, “If this bank comes to me and asks for cash, I will give them up to that much cash.”

🙋‍♂️Why don’t they just lend out the money instead of buying the bones?

✔This is another Steve Colbert on the Eagle issue. It has to do with what’s the proper role of the federal government and what do large government institutions do well versus what do commercial entities do well. The Federal Reserve is run by economists, and economists are often skeptical of what large government agencies are good at doing. The Fed is skeptical about what it’s going to be good at, so it wants to only do things that it’s good at to preserve so that it doesn’t lose money by lending money to bad banks or to having some of its employees take bribes or something bad like that.

What it does is it just buys bonds using auctions. The bond market for US Treasury bonds is incredibly liquid. The prices are very well defined, so it’s easy for someone who’s not like an ace trader to buy bonds without losing money. Buying T-bonds, since they’re so incredibly safe, is one of the safest ways that it can actually do that.

Section 2 Tuesday, Feb 24

🕣 7:35pm
❔ Recent FOMC meeting

✔ Spent most of video on this.