Week 8 Written Assignment – Exercise Questions
Chapter 15, Questions 2-5 & 7, p. 340
Compose your answers in a Word Document. Each question is different and therefore your answers will be of different lengths for each, however, be thorough and explicit in each of your answers in order to earn full credit.
2. Briefly describe the functions the Fed performs for the banking community. In what sense is the Fed the bankers’ bank?
3. Draw a graph showing equilibrium in the money market. Carefully label all curves and axes and explain why the curves have the slopes they do.
4. Using the graph you prepared for exercise 3, illustrate and explain what happens when the Fed decreases the money supply.
5. When the Fed decreases the money supply, the equilibrium level of income changes. Illustrate and explain how.
7. There are several tools the Fed uses to implement monetary policy.
a. Briefly describe these tools
b. Explain how the Fed would use each tool in order to increase the money supply.
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