Assignment:
Question 1. If the reserve requirement (rr) is 0.2, what is the simple deposit multiplier? If, in addition, the currency deposit ratio (c) is 0.05 and the excess reserve ratio (e) is 0.15, what is the money multiplier? Explain why the money multiplier differs from the simple deposit multiplier.
Question 2. In current business publications or on the Federal Reserve Web site (www.federalreserve.gov), find the press release from the most recent meeting of the FOMC. What is the targeted federal funds rate? How does the FOMC evaluate the balance of risks between its goals of price stability and sustainable economic growth?
Question 3. Describe how the following statements relate to the AD-AS model:
a. The Fed has bought more than $2 trillion of Treasury and mortgage bonds to stimulate the economy.
b. The above actions by the Fed may cause inflation to rise to levels that most would consider unacceptable.
c. The Fed expected a weaker dollar to help increase exports.
d. Businesses already have ample access to cheap credit and are reluctant to borrow, hire, and invest for other reasons.