1_) Classify each of these transactions as an asset, a liability, or neither for each of the "players" in the money supply process- Central bank, banks and depositors.

a-) You get a $10.000 loan from the bank to buy a car.

b-) You deposit $400 into your checking account at the local bank

c-)Central Bank provides an emergency loan to a bank for $1.000.000

d-) A bank borrows $500.000 in overnight loans from another bank

2-)"The federal funds rate can never be above the discount rate" Is this statement true, false or uncertain? Explain your answer.

3-) Classify each of the following as either a policy instrument or an intermediary target. Explain your answer;

a-) Long-term interest rates

b-) Central bank interest rates

c-) M2

d-) Reserve requirements

4-) What does the Taylor rule imply that policymakers should do the fed funds rate under the following scenarios?

a-) Unemployment rises due to a recession

b-) Potential output declines while actual output remains unchanged.

c-) The equilibrium real fed funds rate decreases

d-) An oil price shock causes the inflation rate to rise by %1 and output to fall by 1 %.

Homework monetary policy and theory