1. What is the efficient markets hypothesis? What are themost important characteristics of markets that are necessary for them to beefficient?
2. How do stock prices behave if stock markets are efficientand if investors do not care about risk?
3. Explain the major options available to a bank that isshort of reserves. What determines which option a bank is likely to choose?
4. How can the Fed affect the amount of reserves that bankshold? What interest rates can it change to manipulate the quantity of reserves?