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<ol><li><strong>What is the basic objective of monetary policy? State the cause-effect chain

through which monetary policy is made effective. What are the major strengths of monetary policy? Why is monetary policy easier to undertake than fiscal policy?</strong></li><li><strong>Suppose that you are a member of the Board of Governors of the Federal Reserve System. The economy is experiencing a sharp and prolonged inflationary trend. What changes in (a) the reserve ratio, (b) the discount rate, and (c) open-market operations would you recommend? Explain in each case how the change you advocate would affect commercial bank reserves, the money supply, interest rates, and aggregate demand.</strong></li><li><strong>Distinguish between the Federal funds rate and the prime interest rate. Which of these two rates does the Fed explicitly target in undertaking its monetary policy?</strong></li></ol>

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The basic objective of monetary policy is to help and assist the economy to achieve full-employment, economic... View the full answer

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