The Fed-Treasury Accord

Question 1) The subparts of this question are based on the Lecture by former Fed Chairman
Ben Bernanke. Please listen to the first 30 minutes of the lecture and answer the questions asked
below, the lecture slides are provided on sakai, the lecture video link:
a) How did the Fed cooperate with the U.S. Treasury during and immediately after World
War II?
b) Describe the Fed-Treasury Accord and evaluate whether it was effective in improving
economic conditions. Discuss the implications of the agreement.
c) What was a “lean against the wind” policy? Was it effective in the 1950s and early 1960s?
d) Describe exacerbating factors other than monetary policy that may have contributed to
the high rates of inflation and numerous recessions from the mid-1960s through the
e) Describe the conditions leading up to the 1981-82 recession. Summarize monetary policy
before and during the recession. What were Chairman Volker’s goals?
f) Define the term “Great Moderation.” Give examples of its characteristics?
Question 2) Essay Question: Please watch the Milton Friedman video on “How to Cure
Inflation” posted under Week 11, Wednesday 11/4 : Write about a 300-word summary of the
views expressed by Prof. Milton Friedman. In particular, your summary needs to address how
Prof. Friedman describe the following: cause of inflation, costs of inflation on society , what the
Fed can do to cope up with the problem of inflation, and how Japan cured its inflation problem.
Also, describe your key takeaways from the debate, which parts you agreed with and which
parts you disagreed with.
Question 3) If the required reserve ratio is 100 percent, could the Federal Reserve still change
the money supply with open market operations? Explain whether they could or could not.
Question 4) Suppose the quantity of money is greater than the quantity of money demanded.
In the short run, what occurs to set the quantity of money equal to the quantity of money
Question 5) Use the money demand and money supply model to show graphically and briefly
explain the effect on the interest rate if real GDP increases.
Question 6) Use the money demand and money supply model to show graphically and explain
the effect on interest rates of the Federal Reserve’s open market purchase of Treasury

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