FIN 3005 FIN3005 Week 3 Individual Work 1 (Everest University)

FIN 3005 FIN3005 Week 3 Individual Work 1 (Everest University)


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FIN3005 Week 3 Individual Work 1 (Everest University)

Questions and Applications

1. Impact of Monetary Policy. How does the Fed’s monetary policy affect economic conditions?

2. Tradeoffs of Monetary Policy. Describe the economic trade-off faced by the Fed in achieving its economic goal.

3. Choice of Monetary Policy. When does the Fed use a loose-money policy, and when does it use a tight money policy? What is a criticism of a loose-money policy? What is the risk of using a monetary policy that is too tight?

4. Active Monetary Policy. Describe an active monetary policy.

5. Passive Monetary Policy. Describe a passive monetary policy.

6. Fed Control. Why may the Fed have difficulty controlling the economy in the manner desired? Be specific.

7. Lagged Effects of Monetary Policy. Compare the recognition lag and the implementation lag.

8. Fed’s Control of Inflation. Assume that the Fed’s primary goal is to reduce inflation. How can it use open market operations to achieve this goal? What is a possible adverse effect of such action by the Fed (even if it achieves the goal)?

9. Monitoring Money Supply. Why do financial market participants closely monitor money supply movements?

10. Monetary Policy during the Credit Crisis. Describe the Fed’s monetary policy response to the credit crisis.

22. The Fed’s Impact on the Housing Market. In periods when home prices declined substantially, some homeowners blamed the Fed. In other periods, when home prices increased, homeowners gave credit to the Fed. How can the Fed have such a large impact on home prices? How could news of a substantial increase in the general inflation level affect the Fed’s monetary policy and thereby affect home prices.

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