Identifications: Identify and briefly explain the importance of any TWO (2) of the following:
1. Federal Open Market Committee
2. T-account
3. Political business cycle
4. money multiplier
Short Responses: For any THREE (3) of the following statements, state whether you AGREE, DISAGREE, OR CANNOT DECIDE. Explain your position in a paragraph. Your grade will be based largely on your explanations.
1. The only way the Fed can affect the level of discount loans is by adjusting the discount rate.
2. Since interest rates are more easily measured than is the money supply, an interest rate target is preferred to a monetary aggregate target.
3. The failure of the Fed to control the money supply in the 1970s and the 1980s suggests that the Fed is incapable of actually controlling the money supply.
4. If the Fed increases the discount rate this is a signal that the Fed is implementing contractionary monetary policy.
5. The Fed is an independent federal agency.
6. Examination of the Fed’s behavior using the theory of bureaucratic behavior suggests that the Fed never acts in the public’s interest
Essays: In your SECOND BLUEBOOK, answer any TWO (2) of the following:
1. The Fed has three monetary policy tools that it can use to control the money supply. Compare these three monetary policy tools with regard to their flexibility, reversibility, effectiveness, administrative ease, and speed of implementation.
2. Briefly explain what a government deficit is and then outline the methods the government has available to it for financing government spending programs. What effect on the monetary base do these government deficit financing options have on the monetary base?
3. Is the Fed an independent governmental agency? Discuss the degree of independence the Fed currently has and then discuss whether the Fed should be independent or not. Make sure you present both sides of the argument for and against Fed independence before making your recommendations as to which is the best course given our goal of long term economic stability.
4. We often say that the Fed is a lender-of-last-resort: what does this mean and are there any potential problems with the Fed serving this role? Provide examples of the Fed serving as a lender-of-last-resort in your answer and make sure you also discuss the ethical questions that arise from the Fed’s serving this particular role.