PS4 - Department of Economics UC Berkeley Your Name Economics 1 GSI's Name Fall 2014 Section Number PROBLEM SET#4(2 of grade 10 points possible DUE At

PS4 - Department of Economics UC Berkeley Your Name...

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Department of Economics, UC Berkeley Your Name:_________________________ Economics 1 GSI's Name:_________________________ Fall 2014 Section Number:_______________________ PROBLEM SET #4 (2 % of grade; 10 points possible) DUE: At Wed or Thurs section, week of December 1 Problem sets lose 5 points if they are 0 minutes - 24 hours late after the start of section. No problem sets accepted more than 24 hours after section begins. You may work in study groups (in fact, we think that’s a great idea) but your submitted work must be your own: Problem sets that are identical (in whole or in part) to another student’s problem set will receive a zero. IMPORTANT : Place your answers in the area indicated. Problem set answers must be on this sheet to be graded. 1. (2 points total) a. What is the Federal Funds rate? b. When the Fed decreases the target for the federal funds rate, what actions does the Fed take to try to achieve that new FFR? c. What is the new interest rate policy tool that the Fed has signalled it will start using when they begin raising rates? d. What is one advantage to the new policy tool mentioned in (c) over the traditional tool of targeting the FFR? 2. (1 point) Carefully and fully, explain why a decrease in interest rates in the U.S. should lead to a rise in employment in the U.S. Format your answer in a way that makes it easy for your GSI to grade. (Maybe ask your GSI what makes grading easier.) ______
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Department of Economics Fall 2014 University of California, Berkeley Economics 1 Problem Set #4 Page 2 of 4 3. (1 point) a. Look back at your argument in question 2. Identify an assumption in your argument that was not satisfied in the U.S. during the early years of the recovery from the 2007-2009 recession. It should be an assumption that, because it was not satisfied, the decrease in interest rates in the U.S. did not lead to a rise in employment in the U.S. Write down the assumption here.
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