Question: 1. Which loan would likely have the higher interest rate: a car loan in 1965 or a house loan in 1977? How would each of the five interest rate determinants affect your answer to this question.
2. The reserve requirement is 10 percent and the FRS has just made a $10 billion open market purchase. Assume that all excess reserves are used to make loans and that all loans are redeposited into banks.
a. How does this policy affect the money supply? Explain.
b. How does this policy affect the amount of bank loans outstanding? Explain.
c. How does the money multiplier process affect the required reserves of the banking system? Are required reserves more, less, or the same at the end of the process (can you tell how much they change)?