Answer questions 1-4 below according to instructions. Note that there are two pages.
- Please, submit answers in the “Submissions” box on D2L in ONE FILE. (Ex: pdf or Word) If you post more than one file, I will only grade the last one.
- Please, type your answers. For question 2, you can draw your graph on the computer or you can draw by hand, take a photo and insert the picture file in your document.
- Make your answers brief and to the point.
- Make sure you explain where asked to.
- Make sure it’s clear which question you are answering at any point. (ex: 1b)
Note that this is your work.
- You may use notes, the book, videos and internet, but not work with others and not “cut and paste” from sources.
- You are expected to be familiar with class material. Be aware that you should formulate answers in your own words, and your answers should demonstrate that you are familiar with and can use what is covered in class/class material.
- This question will focus on monetary policy and inflation. Start by going to the Board of Governors website (link below) and then follow the link to the “Statement” from the March 16, 2022 meeting. (Posted about 1pm Chicago time on the 16th) (Look at the PDF)
Answer each question below briefly and in your own words.
- What did the FOMC decide regarding the level of the federal funds rate at this meeting? (What did they set as the range for the federal funds rate target, and was that an increase or decrease from before the meeting?)
- What does the Fed say about current inflation and unemployment and how this relates to the goals for monetary policy?
- Does the FOMC say anything about what they expect to happen to the federal funds rate going forward?
- If the Fed wants to lower or increase interest rates, they will do that by changing the interest rate on excess reserves. Explain briefly why the Fed cannot just change the fed funds rate.
- What is the current level for the interest rate on reserves (after the meeting)? (See the “implementation note.”
- Explain briefly how changing the interest rate on reserves helps guide the federal funds rate.
- Draw a diagram with the bond demand and supply curves for 10-year Treasury bonds.
- Label clearly the axis, the curves, and the equilibrium values.
- Assume that the Fed just announced that they will increase interest rates in the future more than people expected. What will be the effect on the demand and/or supply of 10-year Treasury bonds?
- As a result, what will happen to long-term bond yields today? (Will they go up or down?)
- What effect would this have on the shape of the yield curve? Explain briefly. (one sentence)
- There are many regulations put on financial intermediaries. (Regulations made by government regulators.)
List two regulations of financial markets or institutions. Using one paragraph for each regulation, explain briefly the regulation and HOW this regulation reduces asymmetric information or reduces the consequences of asymmetric information in financial markets. (You can discuss asymmetric information or use the terminology of moral hazard and/or adverse selection.)
- What is one question you expected to get on the final that you didn’t get? Write a question AND the answer to the question. (Note: the question should not be the exact same question or use the exact same numbers as a question used in class material.)
