1. During Christmastime, when the public's holdingsof currency increase, what defensive open market operationstypically occur?
2. "The only way the Fed can affect the level ofborrowed reserves is by adjusting the discount rate." Is this statement true, false, or uncertain? Explain youranswer.
3. Using the supply and demand analysis of the market forreserves, show what happens to the federal funds rate, holdingeverything else constant, if the economy is surprisingly strong,leading to an increase in checkable deposits.
4. "Discounting is no longer needed because thepresence of the FDIC eliminates the possibility of bankpanics." Discuss.
5. You often read in the newspaper that the Fed has justlowered the discount rate. Does this signal that the Fed ismoving to a more expansionary monetary policy? Why or whynot?
6. How can the procyclical movement of interest rates(rising during expansions and falling during contractions) lead toa procyclical movement in the money supply as a result of Feddiscounting? Why might this movement of the money supply beundesirable?
7. "Considering that raising reserve requirements to100% makes complete control of the money supply possible, Congressshould authorize the Fed to raise reserve requirements to thislevel." Discuss.