1. REGULATION Q
Although Regulation Q was not mentioned specifically by name, there were several places in the textbook that alluded to the issues involved during the late 1920s and early 1930s. I also spent some time discussing the issues addressed by the regulation. Using the material in the PPT slide presentation or doing a Google search, explain the following regarding Regulation Q.
A. What was the origin and intent of regulation Q
B. Over time, what economic changed that resulted in unintended consequences of Regulation Q.
C. Over the years, what pieces of legislation progressively eroded the effectiveness of Regulation Q and what major piece of legislation completely overturned the regulation.
2. The Fisher hypothesis regarding changes in nominal and real interest rate (slides 26-32 in Chapter 6 PPT presentation)
A. What does the Fisher hypothesis state regarding changes in inflation expectations of inflation and the effect on real and nominal interest rates.
B. What causes the shifts of the supply and demand for bonds with increasing inflation expectations and how are the real and nominal interest altered.
C. If the Fisher hypothesis is true, what does this imply about the equilibrium quantity of bonds bought and sold before and after increasing inflation expectations.
3. The Fed paying interest rates on bank reserves deposited with the Federal Reserve
The fact that the Fed is willing to pay interest on reserves gives the Fed another mechanism for affecting the money supply and the amount of reserves that banks hold. How might a very low interest rate paid on reserves increase the money supply? (Hint: Consider the possible uses of excess reserves.)