1) Explain the loanable funds theory. Draw the basic graph with clear labels.
2) Ceteris pcnibus, how would an increase in the supply of loanable funds affect the equilibrium interest rate, and how would an increase in the demand for loanable funds affect the equilibrium interest rate? Please draw two separate graphs to assist your explanations.
3) Describe the unbiased expectation theory of term structure of interest rates and its implication on the yield curve.
4) What will the Fed most likely do when the objective is to stimulate the economy? What are the consequences of such an action? Specifically. What will happen to the Fed Funds Rate? (Please draw the graph with clear labels to assist your explanation.) What will happen to credit availability and other economic activities?
5) How could the Federal Resent's operation twist affect the shape of the treasury yield curve. other things being equal? Explain.
6) What was the Federal Reserve's intention of launching operation twist? Please relate this to potential economic effects. . The Federal Reserve chose to target fed funds rate from 1970 to October 1979, and moved to targeting motley supply. and moved back to targeting fed funds rates after July 1993.
7) Ceteris paribus, if the Fed was targeting interest rates and money demand increased, what would the Fed likely do?
8) Ceteris paribus,if the Fed was instead targeting the quantity of money supplied and money demand increased, what would the Fed likely do?