Question 1: How does the Fed's monetary policy affect economic conditions?

Question 2: Why may the Fed have difficulty controlling the economy in the manner desired? Be specific.

Question 3: Assume that the Fed's primary goal is to reduce inflation. How can it use open market operations to achieve this goal? What is a possible adverse effect of such action by the Fed (even if it achieves the goal)?

Question 4: When the Fed increases the money supply to lower the federal funds rate, will the cost of capital to U.S. companies be reduced? Explain how the segmented markets theory regarding the term structure of interest rates could influence the degree to which the Fed's monetary policy affects long-term interest rates.

Question 5: During the credit crisis, the Fed used a stimulative monetary policy. Why do you think the total amount of loans to households and businesses did not increase as much as the Fed had hoped? Are the lending institutions to blame for the relatively small increase in the total amount of loans extended to households and businesses?