Problem Set $2$Problems$1.$ When the publics holdings of currency increase, what defensive open market operationtypically occur? Why?$2.$ The only way that the CB can affect the level of borrowed reserves is by adjusting thediscount rate. Is this statement true, false, or uncertain? Explain your answer$\mathrm{.}3.$ Using the supply and demand analysis of the market for reserves, show what happens tothe federal funds rate, holding everything else constant, if the economy is surprisinglystrong, leading to a rise in the amount of checkable deposits$\mathrm{.}4.$ If there is a switch from deposits into currency, what happens to the federal funds rate?Use the supply and demand analysis of the market for reserves to explain your answer$\mathrm{.}5.$ Discounting is no longer needed because the presence of the deposit insuranceeliminates the possibility of bank panics. Discuss$\mathrm{.}6.$ The benefits of using CB discount operations to prevent bank panics are straightforward.What are the costs?$7.$ You often read in the newspaper that the CB has just lowered the discount rate. Does thissignal that the Fed is moving to a more expansionary monetary policy? Why or why not?$8.$ If reserve requirements were eliminated, it would be harder to control interest rates.True, false, or$,$ uncertain?$9.$ Compare the use of open market operations, discounting, and changes in reserverequirements to control the money supply on the following criteria: flexibility, reversibility,effectiveness, and speed of implementation$\mathrm{.}10.$ Most open market operations are currently repurchase agreements. What does this tellus about the likely volume of defensive open market operations relative to dynamic openmarket operations?$11.$ How can the procyclical movement of interest rates $($rising during business cycleexpansions and falling during business cycle contractions$)$ lead to a procyclical movement inthe money supply as a result of CB discounting?$12.$ What are the advantages and disadvantages of quantitative easing as an alternative toconventional monetary policy during an economic crisis?