Q4. Distinguish between the federal funds rate and the discount rate. Why do you think changes to the discount rate are less effective than changes to the federal funds rate?
Q7. Suppose there is a massive withdrawal of deposits by households and business entities (a run on a bank) caused by a rumor of the bank’s financial insolvency. What would be the effect of this event on short-term interest rates? If the Fed wants to intervene to prevent this, what would be the appropriate action?
Q8. Draw a demand and supply curve of the money market and explain why the long-run interest rate is not affected by the Fed’s action of changing interest rates in the short run.
Q9. While describing the concept of the Keynesian money demand function, critically analyze the factors that affect the money demand curve and how that shift affects the equilibrium interest rate.
Hint: You need to use the money supply curve as well in your analysis.
Q10. Critically describe how the OMO (open market operations) of the Fed can be used to affect the following activities of Macroeconomics:
10a. Federal funds rate
10b. Money market interest rate
10c. Inflation rate
10d. Consumption expenditure
10e. Investment expenditure
10f. Aggregate Demand (AD)
Q3. What is monetary policy and its key objectives? What government agency is responsible for making decisions on monetary policy actions and implementations?
Q6. Give at least two reasons why the balanced budget approach for the US economy is not a realistic approach in the short-run, despite political advocacy to bring the budget back into balance.
Q7. Describe briefly the short-run and long-run effects of the rising budget deficit and public debt. What is the crowding out effect? Why has the US economy seldom been faced with the crowding out effect in recent decades despite the skyrocketing budget deficit and public debt?
Q8. Describe the role of a mix of fiscal and monetary policy actions in stabilizing inflation, unemployment, and RGDP growth.
Q9. List a few of the arguments made by business entities, politicians, and different groups in the economics profession for and against “discretionary†fiscal and monetary policy actions. How do they differ from the advocacy for adopting passive “rules†of economic policy? Give real-world examples in your answers in the context of the US economy.
Q1. Using appropriate equations, distinguish between the classical quantity theory of money and the Keynesian monetary theories. Give examples, along with their conceptual differences, as well as policy implications.
Q2. Distinguish between the theoretical arguments for a discretionary versus a rule approach in the Fed’s monetary policy actions. What are the key assumptions that the monetarists have made in advocating for a rule approach to monetary policy? If those assumptions are not valid, does it make the rule approach ineffective? Why or why not? Briefly explain.
Q3. Suppose the Fed is maintaining a growth rate of the money supply M2 at 8% per year for a three-year period. If the long-term RGDP growth rate is assumed to be at 3%, what would you expect to see happen to the average rate of inflation in terms of a monetarist explanation?
Q4. Explain why the velocity of either M1 or M2 is expected to rise during a rising interest rate trend and why it is expected to fall during a declining interest rate trend?
Q6. Why does excessive money supply, usually called printing money, accelerate inflation? Give an example in reference to monetary policy and fiscal policy expansion during the American Rescue Plan to recover from Covid-19 Recession in 2010-2021.
Please answer in short sentences。
