Economics Problem
I. What is the open market operation of the Fed? How do the open market operations work, and what are the effects on the money supply and the economy?
II. What is the federal funds rate, and why are changes in the federal funds rate considered more effective than other policy options for achieving monetary objectives?
III. Suppose the state of the US economy in 2019 is very strong, with the lowest unemployment rate in decades. Given this scenario, what courses of policy action would the Fed be expected to take in using the federal funds rate? Explain briefly.
IV. Why does the Fed rarely change the existing reserve requirements?
V. Distinguish between the federal funds rate and the discount rate. Why do you think changes to the discount rate are less effective than changes to the federal funds rate?
VI. If the Fed makes a massive purchase of Treasury securities, how will this purchase affect the equilibrium interest rate in the federal funds market? Illustrate your explanation with a demand and supply diagram of the federal funds market.
VII. Suppose there is a massive withdrawal of deposits by households and business entities (a run on a bank) caused by a rumor of the bank's financial insolvency. What would be the effect of this event on short-term interest rates? If the Fed wants to intervene to prevent this, what would be the appropriate action?
VIII. Define monetary policy and its key objectives. What government agency is responsible for making decisions on monetary policy actions and implementations?
IX. Give at least two reasons why the balanced budget approach for the US economy is not a realistic approach in the short-run, despite political advocacy to bring the budget back into balance.
X. Describe the role of a mix of fiscal and monetary policy actions in stabilizing inflation, unmeployment, and RGDP growth.
The response should include a reference list. Using one-inch margins, Times New Roman 12 pnt font, double-space and APA style of writing and citations.