1. A restrictive monetary policy involves increasing money supply growth, which reduces the federal funds rate and other interest rates. Explain how such a policy impacts the economy?

2. Why do you think that the central bank focuses on reducing long-term interest rate rather than short term interest rate in a weak economy? Now you may explain how the central bank uses monetary policy to influence long-term interest rates. Why might such a policy affect short-run interest rates in the same direction?

3. A money market instrument with a par value of $15,000 is sold at $13,750. If this security is kept for two years, what is the required rate of return on this instrument?

Answer rating: 100% (QA)

1 A restrictive monetary policy impacts the economy by reducing money supply growth which in turn ra... View the full answer