1. Which goals of the Fed frequently conflict?

2. If the Fed has an interest-rate target, why will an increase in the demand for reserves lead to an increase in the money supply? Explain.

3. What are the benefits of using a nominal anchor for the conduct of monetary policy?

4. If the required reserve ratio is 10%, how much of a new $10,000 deposit can a bank lend out? What is the potential impact on the money supply? (Recall from Macro 103 that the money multiplier = 1 / required reserve ratio.)

5. The Fed wants to increase the supply of reserves, so it purchases $1 million worth of bonds from primary dealers. Show the effect of this open market operation using T-accounts.

6. Use T-accounts to show the effect of the Fed being paid back a $500,000 discount loan from a bank.

7. Why aren’t most central banks more proactive at trying to use monetary policy to eliminate asset-price bubbles?

8. Why might inflation targeting increase support for the independence of the central bank to conduct monetary policy?

9. Why was the Federal Reserve System set up with 12 regional Federal Reserve banks rather than one central bank like most other countries?

10. What is the current federal funds rate? What is the current discount rate (primary credit)?