1. True or False. Provide at least five sentences of Explanations or calculation. One of the limitations of a stimulative monetary policy is the impact of credit crunch. During a weak economy, the Fed stimulates the economy by decreasing the bank funds and increasing the interest rates. The credit crunch does occur because the high interest rate payment may discourage potential borrowers to borrow.
2. True or False. Provide at least five sentences of Explanations or calculation.The Fed’s reaction to oil price shocks will cause a major selloff of bonds and stocks.
3. True or False. Provide at least five sentences of Explanations or calculation. When Fed lowers interest rate to stimulate the economy, the effect of decreasing in interest rate will cause the value of bond and stock to decrease.