Financial Markets & Institutions
Case Study 4
Note on Money and Monetary Policy
Using the Harvard Business Case Study, Note on Money and Monetary Policy, answer the following questions by creating and submitting a Word document. Your answers should be a maximum of 1 page per question (and very possibly less).
1. Following the stock market crash in October 1987 and the terrorist attack in September 2001 the Federal Reserve rapidly increased the amount of money in circulation and lowered interest rates. Why did the Federal Reserve take these actions and what impact do you believe they had?
2. From early 2005 through August 2006, the Federal Reserve steadily raised short term interest rates, being concerned about potential inflationary pressures. It then held short term rates steady through August 2007, saying that it remained very watchful about possible inflationary dangers. However in September 2007 it suddenly dropped rates and took other steps to aid capital market liquidity. Recently short term rates have been maintained at extremely low rates (effectively zero percent for a while). Now there are fears of a double-dip recession and potential deflation on one hand and other fears of potential high inflation in the foreseeable future. If you were sitting on the Open Market Committee today, how would you go about deciding what policy path to take, particularly given the lag in the effect of some monetary policies on the real economy?
Financial Institutions and Markets
4th Case Study
Money and Monetary Policy: A Note
Answer the following questions using the Harvard Business Case Study, Note on Money and Monetary Policy, by creating and uploading a Word document. Each question should have a maximum of one page of answers (and very possibly less).
1. In the aftermath of the stock market crisis in October 1987 and the September 11 terrorist attacks, the Federal Reserve quickly expanded the amount of money in circulation and decreased interest rates. What were the reasons behind the Federal Reserve’s actions, and what impact do you think they had?
2. Concerned about potential inflationary pressures, the Federal Reserve steadily raised short-term interest rates from early 2005 through August 2006. It then maintained short-term rates.