Exercise One: , (a) if The Federal Reserve observes high inflation, what would you recommend
to them as the optimal course of monetary policy in terms of the Reserve Requirement
and why? (b) If unemployment is high, as in the middle of the pandemic, what would you
recommend to them as the optimal course of monetary policy in terms of the Reserve
Requirement and why? (c) What is the current level of the Reserve Requirement?
2. Exercise Two: , (a) what is the Discount Rate and why is it called the “lender of last resort”? (b)
If the country faces an economic downturn, what would you advise to the Federal Open
Market Committee, in terms of the Discount Rate and why? (c) If the country faces high
inflationary pressures, what would you advise to the Federal Open Market Committee, in
terms of the Discount Rate and why?
3. Exercise Three: , (a) what is Forward Guidance and how is it used? (b) When facing high
inflationary pressures, how does the central bank use this tool of monetary policy? (c)
When facing sluggish economic growth, how does the central bank use this tool of
monetary policy? (d) In realty, does the central bank use one, or many tools of monetary
policy – please explain?