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Interest Rates and Monetary Policy

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1. Explain how sticky prices relate to the aggregate expenditures model.
2. Distinguish between the federal funds rate and the prime interest rate. Why is one higher than the other? Why do changes in the two rates closely track one another?
3. Why is the banking system in the United States referred to as a fractional reserve bank system? How does this work at an individual bank. What is the role of deposit insurance in a fractional reserve system?
4. “When a commercial bank makes loans, it creates money; when loans are repaid, money is destroyed.” Explain.
5. List and explain how the tools of monetary policy are utilized to impact the economy.
6. What is monetary policy and what agency implements monetary policy. What are the goals of monetary policy?
7. Does politics influence monetary policy? Please explain you answer.
8. What is the relationship between monetary policy and fiscal policy? Please explain your answer.

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