1. Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.
2. How does the Federal Reserve control the money supply by controlling the size of the monetary
base? Note the tools of monetary policy and how each can affect the monetary base and money
3. What should happen to consumption if the monetary base increases? Explain.
4. What exactly is the Fed Funds Rate, and why isn’t it considered a “tool of monetary policy?
5. List and briefly describe the channels of transmission of monetary policy.
6. In 2010 and 2011, Federal Reserve announced quantitative easing’s, or QEs, which is to create money for buying long-term U.S. Treasury bonds in the market. What is the impact of the QE on security prices? How does the Fed expect the QEs to influence the economy?