QUESTION 1

If current inflation exceeds target inflation by 3%, target inflation is at 2%, and total output is 1% above its potential, what is the target Fed Funds rate that the Fed will set according to the Taylor Rule? Show your calculation details as partial credits may be granted.

QUESTION 5

Which of the following is NOT correct regarding the Federal Reserve?

	A.	Open market operation is the process by which the Federal Reserve purchases and sells government securities in the open market.
	B.	The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements.
	C.	The Bank Borrowing Rate is the overnight lending rate between member banks.
	D.	The reserve requirement for a member bank of the Federal Reserve is the percent of deposit liabilities that must be held in reserve.

QUESTION 9

A $100 deposit into my checking account at My Bank increases my checkable deposits by $100, and the bank's ________ by $100.

	A.	reserves
	B.	loans
	C.	securities
	D.	capital

QUESTION 10

Your bank has the following balance sheet:

Assets Liabilities

Rate-sensitive $100 million Rate-sensitive $75 million

Fixed-rate 100 million Fixed-rate 125 million

Answer the following questions:

1. What would happen to bank profits if the interest rates in the economy go down?
2. Is there anything that you could do to keep your bank from being so vulnerable to interest rate movements?

QUESTION 11

According to the news below,what is the U.S. federal government doing?

A.

an expansionary fiscal policy

B.

a contractionary fiscal policy

C.

a contractionary monetary policy

D.

an expansionary monetary policy

QUESTION 12

Below is the news from "Federal Reserve Cuts Interest Rates for Third Time in 2019" published byThe New York Timeson October 30, 2019.

WASHINGTON The Federal Reserve cut interest rates on Wednesday for the third time this year, reversing nearly all of2018's rate increasesas uncertainty from President Trump's trade war and slowing global growth continue to pose risks to the United States economy.

The decision to cut rates by another quarter point despite rock-bottom unemployment and decent overall growth shows the extent to which Mr. Trump'shot-and-cold trade war, paired with a tenuous global outlook, has put the Fed on the defensive. While the central bank was on a steady march to raise rates just a year ago, it has spent the past several months trying to insulate the American economy against those threats and keep a record expansion humming.

Based on the news above, answer the following two questions:

1. Is the decision of the Fed mentioned in the news expansionary or contractionary?
2. How can the Fed use open market operations to reach the goal (cutting interest rates)?

QUESTION 17

Read the news below.

Answer the following questions:

1. Is the monetary policy mentioned in the news contractionary or expansionary?
2. After this policy is implemented, what do you expect to happen regarding the aggregate demand? Briefly explain.
3. Some people criticized the Fed and said this policy would be very bad for the U.S. economy. Explain briefly the reason that they might have to have this argument. In your opinion, is this policy appropriate for the current U.S. economy?
4. QUESTION 27

Assume that the Federal Reserve decreases the money supply. This action will cause ________ to decrease. Select all correct answers.

	A.	interest rates
	B.	unemployment rate
	C.	aggregate demand in the economy
	D.	inflation rate

QUESTION 28

First National Bank

	Assets	Liabilities
Rate-sensitive	$20 million	$50 million
Fixed-rate	$80 million	$50 million

If interest rates rise by 5 percentage points, say, from 10 to 15%, bank profits (measured using gap analysis) will

	A.	decline by $2.5 million.
	B.	increase by $2.5 million.
	C.	increase by $1.5 million.
	D.	decline by $1.5 million.