Money & Banking

1. Go to the Web site of the Federal Reserve Board at www.federalreserve.gov and find the section describing monetary policy tools. Which unconventional tools employed during the financial crisis of 2007-2009 has the Fed stopped using? What do you think determined the order in which various facilities were shut down? Which, if any, of the tools still remain in operation?

2. Explain why both the Federal Reserve and the ECB use an overnight interest rate rather than a longer-term interest rate as their policy tool?

3. Explain the mechanics of a speculative attack on the currency of a country with a fixed exchange-rate regime.

4. Explain why a well-capitalized domestic banking system might be important for the successful maintenance of a fixed exchange-rate regime.

5. Why is inflation higher than money growth in high inflation countries and lower than money growth in low inflation countries?

6. Describe the impact of financial innovations on the demand for money and velocity.