Problem 1. Explain how do banks create money? What is money multiplier?
Problem 2. American (and world) history is rich with examples of bank crises, often the result of overly expansive loan policies by private banks. As recently as 2007, subprime bank loans (real estate loans made to borrowers with relatively poor credit ratings) have resulted in a significant increase in mortgage defaults. What role, if any, should the Federal Reserve (or other bank regulatory bodies) play in monitoring and remedying these crises?
Problem 3. The yield curve reflects interest rates over different maturities for a given debt instrument, like 10-year treasury bonds, or 3-month treasury bills, as well as for private debt. What can you conclude about an upward-sloping yield curve? What if the yield curve becomes inverted (downward-sloping)?