Please answer the following 3 questions. Identify your answers clearly by using the numbers preceding the questions.
1. Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sever and prolonged recessionary trend.
What changes in the discount rate, open market operations and term auction facility would you recommend? Explain in each case how the changes you advocate would affect commercial bank reserves, the money Supply, interest rates, investment spending, aggregate demand, and the economy in general?
2. Why is monetary policy easier to conduct than fiscal policy in a highly divided national Political environment?
3. What do economists mean when they say that monetary policy can exhibit cyclical asymmetry? Why is this possibility significant to policy makers?