1) Let the following case. On November 1, 2013 incoming Federal Reserve, Chairperson Janet Yellin states unhappiness to NY Times with disappointing employment outcomes of targeting Federal Funds Rate. She proclaims that Fed will soon set the target based on Prime Rate instead. Target for Prime Rate will be 80 basis points below present published WSJ Prime Rate.
a) How has unemployment rate been affected over past two years by Fed’s policy of quantitative easing? Be specific.
b) What will be Feds target for Prime Rate? What do you believe will be results on employment of by using this new target for monetary policy?
c) Explain the pros and cons of using every main tool of monetary policy in achieving and managing this Prime Rate target? What tool(s) do you suggest to Fed Chairperson Yellin?
2) The following accounts (billions) are taken from balance sheet of well-known depository financial institution:
NOW Accounts $ 1.7 Mortgages 2.9
Consumer Loans 1.2 Small Time Deposits 2.2
Cash Reserves 0.9 Fed Funds Sold 1.3
Premises 1.1 Demand Deposits 5.6
Stockholders' Equity 1.8 Treasury Bills 1.6
Municipal Bonds 0.6 Long-term Debt 2.0
Goodwill 0.4 Business Loans 5.2
Negotiable CD’s 1.2 Deferred Expenses 0.7
a) Create the balance sheet for this depository financial institution.
b) Could this be balance sheet for St. Ann’s Credit Union or Bank of America?
Explain fully the reasons for your choice.