1 (a) Is the Federal Reserve more effective at fighting an inflation than a recession? Yes/ No? Explain your answer thoroughly.

1 (b) What Monetary Policy Tools should the Federal Reserve use to fight inflation? Describe them thoroughly.

2. (TCO 9, 10) 2(a) In the day-to-day foreign exchange market what type of market participant demands the euro? What type of market participant supplies the euro?

2(b) For few months, prior to your vacation trip to Germany, you find out that the exchange rate for your U.S. dollar has decreased relative to the euro. If you were a U.S. citizen or resident, are you pleased?? Explain.

2(c) Explain why a currency appreciation does not improve a nation's balance of trade.