- Complete the following textbook problems:
- Chapter 4
- Ch. 4, p.99, # 1. The Fed: Briefly describe the origin of the Federal Reserve System. Describe the functions of the Fed district banks.
- Ch. 4, p.99, # 3. Open Market Operations: Explain how the Fed increases the money supply through open market operations.
- Ch. 4, p.99, # 4. Policy Directive: What is the policy directive, and who carries it out?
- Ch. 4, p.99, # 6. Reserve Requirements: How is money supply growth affected by an increase in the reserve requirement ratio?
- Ch. 4, p.99, # 14. The Fed’s Impact on Unemployment: Explain how the Fed’s monetary policy affects the unemployment level.
- Ch. 4, p.99, # 15. The Fed’s Impact on Home Purchases: Explain how the Fed influences the monthly mortgage payments on homes. How might the Fed indirectly influence the total demand for homes by consumers?
- Ch. 4, p.99, # 16. The Fed’s Impact on Security Prices: Explain how the Fed’s monetary policy may indirectly affect the price of equity securities.
- Chapter 5
- Ch. 5, p.126, #3. Choice on Monetary Policy: When does the Fed use a stimulative monetary policy, and when does it use a restrictive monetary policy? What is a criticism of a stimulative monetary policy? What is the risk of using a monetary policy that is too restrictive?
- Ch. 5, p.126, #11. Impact of Money Supply Growth: Explain why an increase in the money supply can affect interest rates in different ways. Include the potential impact of the money supply on the supply of and the demand for loanable funds when answering this question.
- Ch. 5, p.126, #14. Interpreting the Fed’s Monetary Policy: When the Fed increases the money supply to lower the federal funds rate, will the cost of capital to U.S. companies be reduced? Explain how the segmented markets theory regarding the term structure of interest rates (as explained in Chapter 3) could influence the degree to which the Fed’s monetary policy affects long-term interest rates.
- Ch. 18, p.518, The Effect of Bank Strategies on Bank Ratings (answer all three parts)
- Effect on Bank Strategies on Bank Ratings premium: Interpret the following comments made by Wall Street analysts and portfolio managers.
- a. “The FDIC recently subsidized a buyer for a failing bank, which had different effects on FDIC costs than if the FDIC had closed the bank.”
- b. “Bank of America has pursued the acquisition of many failed banks because it sees potential benefits.”
- c. “By allowing a failing bank time to resolve its financial problems, the FDIC imposes an additional tax on taxpayers.”
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