Assignment

Directions: Please answer each of the following questions in as detailed a manner as possible, and be sure to include all appropriate material discussed in the lectures and the assigned reading material.

1) Compare and contrast the way Classical and Keynesian theory determine the Demand for Money and how it is related to the Money Supply. As a part of your comparison, indicate which of these theories developed the concept of a Liquidity Trap and what this does to the Demand for Money as part of that theory.

2) Explain the ways in which Fiscal Policy and Monetary Policy interact by using Keynesian IS and LM curves. Discuss the impact of an expansionary Fiscal Policy and Monetary Policy on the overall level of economic activity. Include the conditions in which Monetary Policy would have a greater influence on GDP growth and the conditions in which Fiscal Policy would have a greater influence on GDP growth.

3) Name and discuss the major types of financial intermediaries in the U.S. and illustrate the differences in the way assets and liabilities are recorded on their balance sheets. Describe the major differences between depository and nondepository intermediaries, which institutions have recently handled the majority of financial transactions and the major factors that have caused this shift over the past several decades.

4) Discuss the role of the FOMC and the three major policies it implements to help regulate banks. Briefly describe the equation used to measure bank reserves and the definition of the federal funds rate and their role as operating targets of the Federal Reserve as part of the FOMC directive.