FRQ 1: The Role of Money in the Economy
a. Define the three functions of money and explain how each function contributes to economic activity.
b. Describe the difference between commodity money and fiat money. Provide an example of each.
c. Explain how the money supply affects aggregate demand in the short run.
FRQ 2: Banking and the Money Creation Process
a. Explain the process by which banks create money using fractional reserve banking.
b. Given a reserve requirement of 10%, calculate the potential total money supply created from an initial deposit of $1,000.
c. Discuss how a high reserve requirement would impact the ability of banks to create money and its implications for economic growth.
FRQ 3: Financial Markets and Economic Growth
a. Define the role of financial markets in the allocation of resources and the promotion of economic growth.
b. Compare and contrast the roles of bonds and stocks in financial markets.
c. Discuss how changes in interest rates influence investment and consumption decisions in the economy.
FRQ 4: Monetary Policy, the Federal Reserve, and the Ample Reserves System
a. Explain the Federal Reserve’s dual mandate and describe why this mandate is important for the stability of the U.S. economy.
b. In the context of the ample reserves system, identify and describe how the Federal Reserve primarily targets the federal funds rate. Your answer should include the role of interest paid on reserve balances.
c. Assume the Federal Reserve implements a contractionary monetary policy under an ample reserves system. Analyze the short-run impact of this policy on each of the following:
FRQ 5: Stabilization Policies and Their Effectiveness
a. Distinguish between fiscal policy and monetary policy in terms of tools, implementation, and objectives.
b. Discuss how lags in policy implementation can affect the effectiveness of stabilization policies.
c. Evaluate the potential risks of using monetary policy to combat a demand shock in the economy.
FRQ 6: Long-Run Consequences of Stabilization Policies
a. Explain the concept of the natural rate of unemployment and its relevance to long-run economic growth.
b. Discuss how continuous efforts to reduce unemployment below its natural rate can lead to inflationary pressures.
c. Analyze the trade-offs between inflation and unemployment in the context of the Phillips Curve, distinguishing between short-run and long-run relationships.
a. Define the three functions of money and explain how each function contributes to economic activity.
b. Describe the difference between commodity money and fiat money. Provide an example of each.
c. Explain how the money supply affects aggregate demand in the short run.
FRQ 2: Banking and the Money Creation Process
a. Explain the process by which banks create money using fractional reserve banking.
b. Given a reserve requirement of 10%, calculate the potential total money supply created from an initial deposit of $1,000.
c. Discuss how a high reserve requirement would impact the ability of banks to create money and its implications for economic growth.
FRQ 3: Financial Markets and Economic Growth
a. Define the role of financial markets in the allocation of resources and the promotion of economic growth.
b. Compare and contrast the roles of bonds and stocks in financial markets.
c. Discuss how changes in interest rates influence investment and consumption decisions in the economy.
FRQ 4: Monetary Policy, the Federal Reserve, and the Ample Reserves System
a. Explain the Federal Reserve’s dual mandate and describe why this mandate is important for the stability of the U.S. economy.
b. In the context of the ample reserves system, identify and describe how the Federal Reserve primarily targets the federal funds rate. Your answer should include the role of interest paid on reserve balances.
c. Assume the Federal Reserve implements a contractionary monetary policy under an ample reserves system. Analyze the short-run impact of this policy on each of the following:
- The federal funds rate
- Investment spending
- Real GDP
FRQ 5: Stabilization Policies and Their Effectiveness
a. Distinguish between fiscal policy and monetary policy in terms of tools, implementation, and objectives.
b. Discuss how lags in policy implementation can affect the effectiveness of stabilization policies.
c. Evaluate the potential risks of using monetary policy to combat a demand shock in the economy.
FRQ 6: Long-Run Consequences of Stabilization Policies
a. Explain the concept of the natural rate of unemployment and its relevance to long-run economic growth.
b. Discuss how continuous efforts to reduce unemployment below its natural rate can lead to inflationary pressures.
c. Analyze the trade-offs between inflation and unemployment in the context of the Phillips Curve, distinguishing between short-run and long-run relationships.