ECON 272

In Class Exercise Twelve – The FED and Monetary Policy

1.  What are the three "traditional" ways the FED can INCREASE the money supply (by manipulating credit in the system)? 

    a.

    b.

    c.

2.  Explain exactly how the FED attempts to target the federal funds rate down (decrease it) by using open market operations.  Be sure to talk about excess reserves in your answer.

3.  In 2008 the Fed undertook some new ways of trying to manipulate the economy.  Discuss a couple of these changes and what they are designed to do (theoretically)?

4.  According to Keynesians, monetary policy will not be effective if there is a liquidity trap.  Explain what this theory means by "effective" and why the problem can happen.

5.  Explain how monetary policy can create malinvestment in the economy.

6.  What questions do you still have about this material?