1. Why during the pandemic, money multiplier drop?

Compared to Great Depression

Crisis?
2. In recession, developed countries had the risks of deflation while emerging countries
had high inflation. Why?
Câu hỏi thực tế đề 2016:
In the subprime crisis, major central banks have intervened aggressively to provide
liquidity to contain disruptions and contagion in financial markets. At the same time, the
U.S. Federal Reserve has cut interest rates substantially to ease monetary conditions, and the
U.S. Congress has approved a fiscal stimulus package. In the Asian 1997 – 1998
crisis, monetary and fiscal policies were initially tightened to support exchange rates.
Only after exchange rates had stabilized at a lower level did governments adopt more
expansionary fiscal policies to support the real economies” (Ee and Xiang, 2008).
Explain this difference in policy responses to financial crisis.

- Fiscal imbalances can also directly trigger a currency crisis. When government budget
deficits spin out of control, foreign and domestic investors begin to suspect that the
country may not be able to pay back its government debt and so will start pulling money
out of the country and selling the domestic currency. => depreciate => high inflation
YIELD CURVE
Investors can use the yield curve to make predictions on where the economy might be headed and use this
information to make their investment decisions.
- If the bond yield curve indicates an economic slowdown might be on the horizon, investors might move
their money into defensive assets that traditionally do well during recessionary times, such as consumer
staples.
- If the yield curve becomes steep, this might be a sign of future inflation. In this scenario, investors might
avoid long-term bonds with a yield that will erode against increased prices.

The graph above shows that yields are lower for shorter maturity bonds and increase steadily as bonds become more
mature. The shorter the maturity, the more closely we can expect yields to move in lock-step with the fed funds rate.
Normal Yield Curve

As the orange line in the graph above indicates, a normal yield curve starts with low yields for lower maturity bonds
and then increases for bonds with higher maturity. A normal yield curve slopes upwards. Once bonds reach the
highest maturities, the yield flattens and remains consistent. This is the most common type of yield curve. Longer
maturity bonds usually have a higher yield to maturity than shorter-term bonds.

Steep Yield Curve

The blue line in the graph shows a steep yield curve. It is shaped like a normal yield curve with two major
differences. First, the higher maturity yields don’t flatten out at the right but continue to rise. Second, the yields are
usually higher compared to the normal curve across all maturities.

Flat Yield Curve

A flat yield curve, also called a humped yield curve, shows similar yields across all maturities. Such a flat or
humped yield curve implies an uncertain economic situation. It may come at the end of a high economic growth
period that is leading to inflation and fears of a slowdown. It might appear at times when the central bank is
expected to increase interest rates. In times of high uncertainty, investors demand similar yields across all maturities.