1. During Christmastime, when the public’s holdings of currency increase, what defensive open market operations typically occur? 2. “The only way the Fed can affect the level of borrowed reserves

1.  During Christmastime, when the public’s holdings of currency increase, what defensive open market operations typically occur? 2.  “The only way the Fed can affect the level of borrowed reserves is by adjusting the discount rate.”  Is this statement true, false, or uncertain?  Explain your answer. 3.  Using the supply and demand analysis of the market for reserves, show what happens to the federal funds rate, holding everything else constant, if the economy is surprisingly strong, leading to an increase in checkable deposits. 4.  “Discounting is no longer needed because the presence of the FDIC eliminates the possibility of bank panics.”  Discuss. 5.  You often read in the newspaper that the Fed has just lowered the discount rate.  Does this signal that the Fed is moving to a more expansionary monetary policy?  Why or why not? 6.  How can the procyclical movement of interest rates (rising during expansions and falling during contractions) lead to a procyclical movement in the money supply as a result of Fed discounting?  Why might this movement of the money supply be undesirable? 7.  “Considering that raising reserve requirements to 100% makes complete control of the money supply possible, Congress should authorize the Fed to raise reserve requirements to this level.”  Discuss.

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