The purpose of this assignment is to check how well you understand the role of the Federal Reserve Bank in conducting monetary policy.

Question 1:

Describe the relationship between interest rates and the economy. What direction would the Federal reserve bank move interest rates when the economy is sluggish, and why?

Question 2:

Scenario: The Open Market Committee of the Federal Reserve Board is looking at economic data and sees that the inflation rate over the past 2 quarters has gone from 3% per year to 5% per year to 7.2% per year. Describe 2 actions they might take considering this information. Be sure to explain their decision-making process and the intended consequences of each of these 2 actions.

Question 3:

What does a consumer price index of 103.7 mean? What does a consumer price index of 88.4 mean?

Question 4:

Suppose that the CPI in year 1 is 104.8 and in year 2 is 107. Is it true that the rate of inflation over this time period is 2.2%. Explain your answer.

Question 5:

Explain 2 main differences between money and cryptocurrency.

Question 6:

Suppose that the unemployment rate is 8% and the rate of inflation is 8%.

a. Is this situation good? Bad? Neither? Both? Explain.

b. What do you advise the Federal Reserve Bank to do?