1. What is monetary policy?
  2. What are the three kinds of money?
  3. What are the three functions of money?
  4. What is the difference between M 1, M2, M3, and L?
  5. What is the price of money?
  6. Name three reasons why interests rates differ.
  7. If the nominal interest rate is 8 percent per year and the inflation rate is 3 percent per year, what is the real interest rate?
  8. Name and describe the two sources of money demand.
  9. What three characteristics of the modern banking system were also characteristics of the early goldsmiths?
  10. Suppose the reserve requirement is 20%. What is the money multiplier?
  11. How does a bank run occur?
  12. Why is the Federal Reserve considered the “lender of last resort?”
  13. What are the three instruments of monetary policy? Which is the most important?
  14. Suppose the Federal Reserve sells bonds. Is this contractionary or expansionary monetary policy?
  15. Describe the monetary transmission mechanism.
  16. Illustrate how to close a recessionary gap using monetary policy in the aggregate supply-aggregate demand framework.
  17. Which is more precise: monetary policy or fiscal policy? Why?
  18. What is the Keynesian view of monetary policy?
  19. What is the Monetarist view of monetary policy?
  20. Explain the Great Depression from a Monetarist perspective.
  21. Use the Aggregate Supply-Aggregate Demand framework to illustrate stagflation.
  22. What is the Keynesian dilemma created by stagflation?
  23. What is the Monetarist solution to stagflation?

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