Which of the following are included in the monetary base?
> Explain how the European Central Bank’s interest payments on the deposits commercial banks have at the ECB provides an interest rate floor for the interbank lending rate.
> The European Central Bank uses reserve transactions in its version of open market operations. Explain to someone with no training in economics what reserve transactions are.
> Monetization of public debt often leads to which economic problem?
> President Abraham Lincoln funded the Union Army during the Civil War by a “monetization of public debt.” What did Lincoln do?
> Explain why Keynes thought monetary policy during the Great Depression was like “pushing on a string.” Was it similar during the Great Recession of 2008–2009? Why or why not?
> Fred is holding on to cash because he thinks interest rates will increase in the future and thus bond prices will decrease, making the future a good time to buy bonds. Keynes would say Fred is holding on to cash as part of which type of demand for money?
> Explain why targeting interest rates is so difficult for central banks if the demand for money is unstable.
> During the Reagan Administration in the 1980s, the US government ran large government budget deficits, which many argued would slow down the US economy. Using the loanable funds framework, explain in words and graphically why this argument was being made
> Irving Fisher explained the demand for money using the quantity theory of money demand. Explain this concept to someone who has no training in economics.
> What is the Federal Reserve trying to twist in its “Operation Twist”?
> Explain why the Federal Reserve went from emergency lending to quantitative easing.
> During the crisis of 2007–2008, the Federal Reserve created an alphabet soup of emergency lending programs: TSLF, PDCF, AMLF, MMIFF, CPFF, and TALF, among others. Why did the Fed feel compelled to do so?
> During a credit crunch we can expect interest rates to:
> Explain why the stigma effect may be heightened during an economic slowdown.
> Why did the Federal Reserve feel it was necessary to create the term auction facility?
> During what time period was the Bretton Woods System in place?
> Andy is completely confused about the Bretton Woods System. He does not understand how it functioned. What would you tell Andy?
> The financial and economic system in Canada functioned very differently from financial systems in other Western countries. In what way was Canada’s experience different?
> Why did the attempt to return to the gold standard after World War I not work out so well?
> You read in the business press that real, risk-adjusted interest rates in Switzerland have decreased relative to interest rates in the United Kingdom. What will happen in the foreign exchange market and thus in the goods market?
> Gary does not understand how purchasing power parity affects exchange rates. How would you explain this to him?
> Explain in words and show graphically why decreases in inflationary expectations can lead to currency appreciation.
> When a central bank seeks to offset the impact of its attempt to influence the exchange rate of its currency on the monetary base, this action is referred to as:
> Explain why the supply curve in the foreign exchange market slopes upward. Who causes it to have this shape and how?
> Explain why the demand curve in the foreign exchange market slopes downward.
> If the value of the Indian rupee decreases, which of the following will occur?
> Kari runs a firm in Los Angeles, California, that buys a lot of its inputs from a supplier in Australia. What would she like to see happen to the US dollar in terms of the Australian dollar? Why?
> Julie runs an export business in Austin, Texas, and sells a large amount in Mexico. What would she like to see happen to the US dollar in terms of the Mexican peso? Why?
> How is the structure of the Bank of Canada similar to that of the Federal Reserve? How is it different?
> Explain the steps the Federal Reserve goes through when conducting an expansionary open market operation. Who is affected and how?
> Savings & Loan Associations were established to lend money to households so that the households could:
> Why was there a push to economically and financially integrate western Europe after World War II?
> Rationing was used in the United States during World War II in part to:
> During World War II there was relatively little inflation in the United States. Why was this the case?
> There are three ways to finance a war. What are they? How were they used in the past?
> When an economy is suffering from deflation, the nominal or market interest rates tend to:
> In 1907 J. Pierpont Morgan was able to help end a financial crisis in great part by restoring confidence. Why weren’t a different set of banker’s actions enough to stop the financial crisis in October 1929?
> How is the structure of the ECB similar to that of the Federal Reserve? How is it different?
> Low interest rates may, or may not, signal that a central bank is pursuing an “expansionary” policy. Explain.
> The Panic of 1907 was primarily ended thanks to the actions of:
> F. Augustus Heinze tried to corner the market for shares of United Copper. What does this mean? How did it help to trigger the Panic of 1907?
> What role did Taylorism, or “scientific management,” play in the expansion of financial markets in the United States?
> If a central bank wants to pursue an expansionary monetary policy, it should change policies to ensure what happens to the required reserves ratio?
> You read in the press that a credit crunch is occurring. How will that affect the money supply multiplier and why?
> Explain why (just mathematically) if people hold relatively more cash—that is, the currency ratio k increases—the money supply multiplier gets smaller.
> If US Treasury and administration officials decide they want to see the dollar rise in value against the euro, what will happen to the monetary base?
> Explain how changes in the Treasury’s tax and loan account balance may affect the monetary base. “tax and loan accounts,” at commercial banks across the country.
> If bank depositors hold more cash and fewer deposits, the monetary base does not change, only the composition of it does. Explain why.
> Critics of the Bank of Japan argue that it played a role in the global financial crisis. What do these critics argue?
> Explain why the Federal Reserve has more control over the monetary base when it uses open market operations than when it uses discount window lending.
> Explain how the Federal Reserve’s conduct of an expansionary open market operation affects the monetary base.
> The fact that the face value of a bond does not change over the life of the bond is generally considered a benefit to the borrower. Can you explain why?
> Today, shoppers “clip coupons” before they go shopping. Explain how these modern coupons are similar and dissimilar to the “coupons” referred to in the bond market.
> What is the difference between money and currency? When are they the same? Why might they be different?
> If the annual interest rate is 2%, what is the quarterly interest rate?
> What is the future value of $500 in two years if the interest rate is 4%? How would you explain this to someone who has no training in economics?
> Each person might have a different time preference. Explain why an older person might have a higher or lower time preference than a young person.
> In what ways are the Bank of Japan and the Bank of England significantly different from the Federal Reserve?
> Which of the following is the most broad or most inclusive measurement of the money supply?
> Economists are searching for a “good” measurement of the money supply. What constitutes a good measurement of the money supply?
> A critic of money economics once stated, “if you cannot measure the money supply accurately, it is not worth discussing at all.” How would you refute this statement?
> Ricardo and Friedman agree that if the money supply increases “too quickly” the following happens:
> Proponents of the Gold Standard, or using gold as money, often argue that it will keep inflation under control. How does the experience of Europe in the sixteenth century raise doubts about that claim?
> Some believe identifying an asset bubble until it breaks is impossible, and thus monetary policy should not be used to deflate asset bubbles. Stiglitz argues this argument is false because it ignores what economic concept?
> Stiglitz argues that the Fed’s focus on price stability actually contributed to the Great Recession. Explain Stiglitz’s argument. that if one wants economic stability, one must have price level stability first.
> Tommy believes that markets are rational. Explain why Tommy thus would argue that asset bubbles don’t exist. How would economists such as Joseph Stiglitz counter Tommy’s argument?
> According to the Taylor Rule, if the real federal funds rate equals 2%, the inflation target rate is 2%, the actual inflation rate is 4%, and the economy is at the full employment level of output, what should the federal funds target be?
> What problems with the Taylor Rule does the Mankiw Rule attempt to address?
> In what ways are the Bank of Japan and the Bank of England similar to the Federal Reserve?
> Some look at the structure of the Federal Reserve and come to the conclusion that it is “undemocratic.” Why do you think they come to this conclusion? Do you agree with them?
> Which of the following are lags in monetary policy?
> Explain why many economists argue the explicit inflation target for monetary policy is far too rigid to be effective.
> Explain how the time inconsistency problem in monetary policy is used by many to argue in favor of central bank independence.
> The “dual goals” of current monetary policy in the United States are:
> Opponents of the “financial market stability goal” of monetary policy believe it may be difficult for the Federal Reserve, or any central bank, to achieve this goal. Explain their argument.
> Some argue the Federal Reserve should not have “high employment” as one of the goals of monetary policy because there are so many causes of unemployment that are beyond the Fed’s control. What are these various causes of unemployment?
> Under price level-targeting monetary policy, a sharp drop in the inflation rate today means what for the future?
> Explain why some argue that a central bank’s goal of price level stability can hurt the middle class and working people while benefiting more wealthy individuals.
> Explain why deflation leads to an increase in the real burden of debt.
> Scott suffers from what Simon Johnson calls “intellectual capture.” What does that mean?
> The main purpose of term auction lending was to:
> If John Deere Financial provides loans to John Deere customers and is owned by Deere & Company, then John Deere Financial is known as what type of finance company?
> Finance companies are not depository institutions, but they still lend money. If finance companies do not take deposits, where do they get the funds they lend to their customers?
> Bobby is interested in borrowing money, but he cannot get a loan from a depository institution. He turns to a consumer finance company. In what ways are the loans Bobby might get from a finance company different from the loans he would get from a deposit
> The first credit unions, or credit cooperatives, in North America were started where and when?
> When it comes to lending to businesses, credit unions often argue they should be allowed to write more business loans, whereas critics contend credit unions’ business lending should be restricted. Explain each side’s argument.
> Credit unions are similar to commercial banks in that they are both depository institutions. Explain how credit unions are also very different from commercial banks.
> Which government agency was created to close and liquidate the failed thrifts?
> Explain how zombie institutions are in one sense “dead” but in another sense are still “alive.”
> Explain why the phasing out of Regulation Q by DIDMCA did not end the problems faced by the thrifts.
> When market interest rates increased during the 1960s, thrifts found it difficult to attract deposits because of which Depression-era policy?
> In what ways did the Fed’s balance sheet change in response to the global financial crisis?
> Explain how savings banks and Savings & Loans were similar but also very different.
> Initially, thrifts were depository institutions that often were considered “special.” Why were they viewed this way?
> Explain the controversies that exist over the Bureau of Consumer Financial Protection. How can some critics claim it has too much power, whereas other claim it has no meaningful use at all?
> The Community Reinvestment Act was created in response to the issue of redlining. What is/was redlining and how did the act attempt to address it?
> In a “pay off and liquidate” approach, what is being liquidated?
> Explain how regulators use the CAMEL rating in the regulation process.
> Robert is confused about why regulators created the too big to fail policies. What would you tell Robert?
> The Basel Accords attempted to address which of the following issues?
