Business invest in positive NPV (Net Present Value) projects. The formula for NPV is stated below.

a.) Given the NPV formula above, briefly explain why the quantity of funds that business desire (demand) to borrow increases as interest rates decrease.

b.) Given the NPV formula above, very briefly explain why the quantity of funds that businesses desire (demand) to borrow at a given interest rate will increase as economic conditions improve.

5.) Suppose that the Federal Open Market Committee (FOMC) releases a statement indicating its desires to stimulate the U.S. economy.

a.) When we say stimulate the economy, what exactly are we referring to (i.e., how do we measure the strength of the economy). List and briefly define two (2) things.

Economic objective #1:

Economic objective #2:

b.) List and briefly explain two (2) methods (monetary policy tools) that the FOMC might in attempt to achieve this desire to stimulate the economy.

Monetary policy tool #1:

Monetary policy tool #2:

6.) Given the scenario in question 5.) above, where the FOMC wants to stimulate the US economy and it will deploy its monetary policy tools to do so

a.) What is a possible negative consequence (i.e., the trade off in monetary policy) of the FOMCs actions?

b.) Why might these monetary policy tools fail in their attempt to stimulate the U.S. economy?

n NPV = -Inital Cost + Cash Flowt (1 +i) t=1 n NPV = -Inital Cost + Cash Flowt (1 +i) t=1