QUESTIONS AND APPLICATIONS

1. Impact of Monetary Policy: How does the Fed's monetary policy affect economic conditions?

2. Trade-offs of Monetary Policy : Describe the economic trade-off faced by the Fed in achieving its economic goals.

3. Choice of Monetary Policy : When does the Fed use a loose-money policy, and when does it use a tightmoney policy? What is a criticism of a loose-money policy? What is the risk of using a monetary policy that is too tight?

4. Active Monetary Policy : Describe an active monetary policy.

5. Passive Monetary Policy: Describe a passive monetary policy.

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

7. Lagged Effects of Monetary Policy : Compare the recognition lag and the implementation lag.

8. Fed's Control of Inflation:  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)?

9. Monitoring Money Supply:  Why do financial market participants closely monitor money supply movements?

10. Monetary Policy during the Credit Crisis:  Describe the Fed's monetary policy response to the credit crisis.

Attachment:- Questions and Applications.rar