1. Explain how do banks create money? What is money
multiplier?
2. American (and world) history is rich with examples of
bank crises, often the result of overly expansive loan policies by private
banks. As recently as 2007, subprime bank loans (real estate loans made to
borrowers with relatively poor credit ratings) have resulted in a significant
increase in mortgage defaults. What role, if any, should the Federal Reserve
(or other bank regulatory bodies) play in monitoring and remedying these
crises?
3- The yield curve reflects interest rates over different
maturities for a given debt instrument, like 10-year treasury bonds, or 3-month
treasury bills, as well as for private debt. What can you conclude about an
upward-sloping yield curve? What if the yield curve becomes inverted
(downward-sloping)?
