• Identify the core principles that could be used to explain why credit card issuers charge such high rates of interest. Refer to Chapter 1, section "The Five Core Principles of Money and Banking," pages 4-8.
• Explain why the following statement is true: "Money is an asset, but not all assets are money." Refer to Chapter 2, section "Money and How We Use It," pages 23-25.
• Identify the four fundamental characteristics that determine the value of a financial instrument. Refer to Chapter 3, section "Primer for Valuing Financial Instruments," pages 50-51.
• If a borrower and a lender agree on a long-term loan at a nominal interest rate that is fixed over the duration of the loan, explain how a higher-than-expected rate of inflation will impact the parties, if at all. Refer to Chapter 6, section "Inflation Risk," pages 151-152.

Imagine you are advising the leadership of a new, independent country for the design of their central bank.

1. Describe one benefit and one drawback for each type of central bank design listed below:
   • Design 1 - Central bank policy decisions that are irreversible or central bank policy decisions that can be overturned by the democratically elected government.
   • Design 2 - The central bank has to submit a proposal for funding to the government each year or the central bank finances itself from the earnings on its assets and turns the balance over to the government.
   • Design 3 - The central bank policymakers are appointed for periods of four years to coincide with the electoral cycle for the government or the central bank policymakers are appointed for 14-year terms.
2. Identify the design you would recommend for this country and why.
3. Be sure to describe any necessary characteristics and assumptions about this country to support your recommendation.

• In the aftermath of the financial crisis of 2007-2009, there have been calls to re-instate the separation of commercial and investment banking activities that were removed with the repeal of the Glass-Steagall Act. Do you think this is a good way to reduce systemic risk?
• Owners and managers have cited three reasons for the creation of large financial firms or universal banks. What are these reasons? Refer to Chapter 13, section "The Future of Banks," pages 336-337.
  • What was the primary motivation behind the creation of the 1988 Basel Accord?
  • Today, there is a clear consensus about the best way to design a central bank. What are the criteria for a successful central bank?
  • Respond to the following statement with a brief explanation: "The Federal Reserve can improve the performance of the stock market, but it cannot prevent a stock market crash."
• Choose a position to defend:
  • "The U.S. Congress and the president should have enough leverage and power to control the Federal Reserve's actions in both the short and long run."
  • "The Federal Reserve should be independent from political pressure in designing and implementing monetary policy."
• Choose a position to defend:
  • "The U.S. Congress and the president should have enough leverage and power to control the Federal Reserve's actions in both the short and long run."
  • "The Federal Reserve should be independent from political pressure in designing and implementing monetary policy."
• If "inflation is always and everywhere a monetary phenomenon," why did the huge expansions of central bank money supply by the Federal Reserve, the ECB, and the Bank of Japan between 2007 and 2015 not result in high inflation in those economies?
• Explain why stabilization policies are usually pursued using monetary rather than fiscal policy.
• Why is a booming stock market not always a good thing for the economy?
• What would you expect to happen to investment and growth in the economy if the U.S. government decided to abolish the Securities and Exchange Commission? Explain your rationale. You can refer to the Securities and Exchange CommissionLinks to an external site. website to help you formulate your response.