• What are the expansionary monetary policy and contractionary monetary policy? What are their policy instruments? How are they used to deal with the inflationary gap and recessionary gap? Which do you think is more appropriate today?
• If the Fed wants to increase aggregate demand, it can increase the money supply. If it does this, what happens to the interest rate and rate of inflation? Why might the Fed choose not to respond in this way?
• Should monetary policy be made by rule rather than by discretion? Why?
• The only thing backing up a nation's currency (fiat money) in the modern world is faith in the government issuing it. If this is so, what should governments do to maintain a stable currency? How can the Central Bank (the Federal Reserve) build trust in the U.S. currency? What actions would undermine a currency?